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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TOM'S FOODS INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<C> <C> <C>
DELAWARE 2096 58-1516963
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
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900 8TH STREET
COLUMBUS, GEORGIA 31902
(706) 323-2721
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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ROLLAND G. DIVIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TOM'S FOODS INC.
900 8TH STREET
COLUMBUS, GEORGIA 31902
(706) 323-2721
(Name, address, including area code, and telephone number,
including area code, of agent for service)
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Copies to:
Bernard S. Kramer, Esq.
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Exchange Offer described herein.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS A COMPLIANCE
WITH GENERAL INSTRUCTION G, CHECK THIS BOX. [ ]
CALCULATION OF REGISTRATION FEES
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------
10 1/2% Senior Secured
Notes due 2004........... $60,000,000 100% $60,000,000 $18,181.82
=======================================================================================================================
</TABLE>
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE 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 BY 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.
PROSPECTUS SUBJECT TO COMPLETION
1997
[TOM'S LOGO] TOM'S FOODS INC.
OFFER TO EXCHANGE UP TO $60,000,000 AGGREGATE PRINCIPAL AMOUNT OF ITS 10 1/2%
SENIOR SECURED NOTES DUE NOVEMBER 1, 2004.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON
1997, UNLESS EXTENDED.
------------------------
Tom's Foods Inc. ("Tom's Foods" or the "Company") hereby offers, upon the
terms and conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange up to
$60.0 million aggregate principal amount of 10 1/2% Senior Secured Notes due
2004 of the Company (the "Exchange Notes") for any and all of the issued and
outstanding 10 1/2% Senior Secured Notes due 2004 of the Company (the "Old
Notes," and together with the Exchange Notes, the "Notes") from the holders
thereof. As of the date of this Prospectus, there is $60.0 million aggregate
principal amount of the Old Notes outstanding. The terms of the Exchange Notes
are identical in all material respects to the Old Notes, except that the
Exchange Notes have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and therefore will not bear legends restricting their
transfer and will not contain provisions providing for payment of liquidated
damages under certain circumstances relating to the Registration Rights
Agreement (as defined herein), which provisions will terminate as to all of the
Notes upon the consummation of the Exchange Offer. Interest on the Exchange
Notes will accrue from the date of original issuance and will be payable
commencing on May 1, 1998 and thereafter semi-annually in arrears on each
November 1 and May 1. The Exchange Notes will mature on November 1, 2004. Except
as described below, the Company may not redeem the Notes prior to November 1,
2001. On or after such date, the Company may redeem the Exchange Notes, in whole
or in part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. Upon certain Public Equity
Offerings (as defined) on or prior to November 1, 2000, the Company may redeem
up to 30.0% of the Exchange Notes then outstanding at a price equal to 110.5% of
the principal amount thereof, together with accrued and unpaid interest thereon;
provided, that after giving effect to such redemption at least $45.0 million
principal amount of Exchange Notes remain outstanding. Upon the occurrence of a
Change of Control (as defined), each holder of an Exchange Note will have the
right to require the Company to make an offer to purchase all or a portion of
such holder's Exchange Notes at a price equal to 101.0% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase. In addition, under certain circumstances the Company will be obligated
to offer to purchase the Exchange Notes at 100.0% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase with
the net proceeds from certain asset sales. See "Description of the Notes."
The Exchange Notes will be senior obligations of the Company and will rank
pari passu with any existing or future indebtedness of the Company other than
any indebtedness that is expressly subordinated to the Exchange Notes. The
Exchange Notes will be secured by a first priority lien on and security interest
in substantially all of the assets and properties owned by the Company excluding
its receivables (at June 14, 1997, $17.3 million), inventory (at June 14, 1997,
$10.0 million) (and certain assets and rights relating thereto), certain funds
(at June 14, 1997, $1.4 million) held in escrow for the benefit of the holders
of the Industrial Development Revenue Bonds (as defined), the Company's real
property, buildings, improvements and fixtures located at its plant in Knox
County, Tennessee (at June 14, 1997, $2.8 million) the Company's property, plant
and equipment located at its plant in Taylor County, Florida (at June 14, 1997,
$4.8 million) and certain other parcels of real property (at June 14, 1997,
approximately $300,000), (such excluded collateral, collectively, the "Excluded
Collateral"). As of June 14, 1997, the assets and properties of the Company,
other than the Excluded Collateral, had a net book value of $100.1 million (the
"Collateral"). The Indenture (as defined) permits the Company to incur
additional indebtedness, including indebtedness under the Working Capital
Facility (as defined), subject to certain limitations. As of June 14, 1997, as
adjusted to give effect to the sale of the Old Notes on October 14, 1997 (the
"Old Note Offering"), the application of the net proceeds therefrom, the
repayment and exchange of the TFH Debt (as defined), and the satisfaction of the
STI Debt (as defined), the aggregate amount of the Company's outstanding
indebtedness, including the Class A Preferred Stock (as defined) was $77.3
million (not including unused commitments of $13.8 million under the Working
Capital Facility). See "Use of Proceeds" and "Description of the Notes --
Ranking."
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE 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.
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THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
(continued from previous page)
The Old Notes were not registered under the Securities Act in reliance upon
an exemption from the registration requirements thereof. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exception from, or in a transaction not subject to, the
Securities Act. The Exchange Notes are being offered hereby in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement (as defined). Based on interpretations by the staff of the Securities
and Exchange Commission (the "Commission") set forth in no-action letters issued
to third parties, the Company believes that the Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than a holder that
is an "affiliate" of the Company with the meaning of Rule 405 promulgated under
the Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business, such holder has
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, and neither such holder nor any such person
is engaging in or intends to engage in a distribution of such Exchange Notes.
Notwithstanding the foregoing, 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 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 time to time, may be used by a broker-dealer
in connection with any resales of Exchange Notes received in exchange for Old
Notes where such Old 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, they will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Old Notes are currently eligible for trading in the Private Offerings.
Resales and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the Exchange Notes. The Company does not
currently intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the Exchange Notes.
The Company will not receive any cash proceeds from the Exchange Offer. The
Company will pay all of the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn as provided herein at
any time prior to the Expiration Date (as defined). The Exchange Offer is
subject to certain customary conditions.
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, financial statements and
notes thereto included elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to "Tom's Foods" or "the
Company" refer to Toms Foods Inc., a Delaware corporation. All references in the
Prospectus to fiscal year refer to the Company's fiscal year, which is the 52-
or 53- week period ending the Saturday nearest to December 31. For example,
"fiscal 1996" refers to the fiscal year ended December 28, 1996.
THE COMPANY
Tom's Foods is a leading regional snack food manufacturing company with a
primary market focus in the southeastern and southwestern United States, regions
in which the Company believes the population and snack food consumption are
growing more rapidly than in the United States overall. The Company has
manufactured and sold snack food products since 1925 and currently manufactures
over 250 and sells over 300 ready-to-eat snack food products, primarily under
the widely recognized "Tom's" brand name. Management believes that the Company
has one of the most diversified distribution networks in the snack food
industry. The Company's distribution network serves a variety of customers,
including independent retailers, vending machines, retail supermarket chains,
convenience stores, mass merchandisers, food service companies and military
bases. Management believes that the Company's competitive advantages include the
strength of its distribution network, which services independent retailers in
various markets, and its vending machine network, which is one of the largest
single-label, snack food vending machine networks in the United States. The
Company's products are distributed in 43 states by 915 independent distributors,
which operate approximately 2,131 sales routes, and Company employees, who
operate approximately 217 routes.
The Company packages its products in single-serve and multi-serve sizes
("Single-Serve Sizes" and "Multi-Serve Sizes", respectively) to meet the demands
of its market niches. Single-Serve Sizes, which accounted for 52.6% of the
Company's net sales in fiscal 1996, are primarily distributed through vending
machines, small or independent retail outlets and national chain convenience
stores. The Company's distribution network is well situated to serve these
channels, which are not a primary focus of the larger national industry
participants. Multi-Serve Sizes, which accounted for 25.6% of the Company's net
sales in fiscal 1996, are positioned as an alternative to national brands and
marketed to supermarkets and larger retail outlets, such as those operated by
Winn Dixie Stores, Inc., Kmart Corporation, Hannaford Brothers Co., The Circle K
Corporation, Diamond Shamrock, Inc., The Kroger Co. and Wal-Mart Stores Inc.
For the 52-week period ended June 14, 1997, the Company had net sales of
$214.5 million and Adjusted EBITDA (as defined) of $11.7 million.
The Company sells a wide variety of products in five snack food categories:
chips, sandwich crackers, baked goods, nuts and candy. The chip category, which
includes corn, tortilla and potato chips, pretzels and popcorn, accounted for
$105.9 million or 51.4% of the Company's net sales in fiscal 1996. The sandwich
cracker category, which includes peanut butter and cheese-filled crackers and
cream-filled cookies, accounted for $29.2 million or 14.2% of the Company's net
sales in fiscal 1996. The baked goods category, which includes cookies, snack
crackers, fig and apple bars and a line of cakes and pastries, accounted for
$26.1 million or 12.7% of the Company's net sales in fiscal 1996. The nut
category, which includes toasted and flavored peanuts, cashews, pistachios and
sunflower seeds, accounted for $19.4 million or 9.4% of the Company's net sales
during the same period. The candy category, which includes candy bars, hard and
roll candies, gum and coated nuts, accounted for $14.9 million or 7.3% of the
Company's net sales in fiscal 1996. The Company's distributors also sell
products of other food manufacturing companies which complement the Company's
own product lines (the "Affiliated Products"). In fiscal 1996, sales of
Affiliated Products accounted for $10.4 million or 5.0% of the Company's net
sales.
As defined by Snack & Bakery Foods magazine, the domestic snack food
industry consists of 21 product sub-categories generating retail sales of
approximately $54.3 billion in 1996, an increase of 2.7% over the prior year.
The 14 product sub-categories in which the Company competes generated industry
retail sales of approximately $40.4 billion in 1996, a 2.3% increase over 1995
and a compound annual growth rate of 4.6%
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since 1992. In 1996, no manufacturer other than Frito-Lay Co. ("Frito-Lay") had
more than a 1.0% market share in the 14 product sub-categories in which the
Company competes.
During the late 1980's and the first half of the 1990's, several large
industry participants initiated a period of intense potato chip price
competition within the snack food industry. Such price competition significantly
reduced profit margins for the industry and ultimately led to the withdrawal or
curtailment of the operations of a number of snack food companies. Potato chips,
the largest salty snack sub-category and the Company's largest product line,
generated industry retail sales in 1996 of $5.3 billion, an increase of 9.2%
over 1995 sales.
Since early 1996, gross margins in the industry have improved and market
participants now generally can be characterized as either national or regional.
National snack food companies, the largest of which generated approximately $6.6
billion in domestic sales in fiscal 1996, generally serve supermarket chains,
mass merchandisers, warehouse clubs and national convenience store chains. The
major regional snack food companies, including Tom's Foods, generally serve
distribution, product or geographic niches which are not a primary focus of the
larger national industry participants.
During the late 1980's and the first half of the 1990's, the Company had
limited financial flexibility, largely as a residual effect of prior ownership
changes. Consequently, the Company was more vulnerable to increased competition
and reduced margins which affected the industry as a whole. In addition, the
Company took various steps to conserve cash flow, including reducing marketing
and product development programs, which ultimately resulted in reduced
profitability. During this period, the Company also departed from its prior
multi-route distribution strategy, which encouraged each distributor to operate
more than one route, and franchised a number of routes on a one route per
distributor basis. These initiatives contributed to a decrease in net sales from
$224.6 million in fiscal 1992 to $198.3 million in fiscal 1995 and a decline in
EBITDA from $25.6 million in fiscal 1992 to a $1.2 million loss (or an Adjusted
EBITDA of $8.4 million) in fiscal 1995.
BUSINESS STRATEGY
In 1995, the Company hired a new senior management team, which developed
and implemented a business strategy designed to increase profitability. The
components of the business strategy include: (i) developing and expanding
markets; (ii) strengthening the Company's distribution network; (iii) increasing
introductions of new and updated products; (iv) expanding distribution channels
and outlets; and (v) increasing operating efficiencies. In part as a result of
this new business strategy, for the 52 weeks ended June 14, 1997, Adjusted
EBITDA increased 48.8% over the same period in the previous year.
The key elements of the Company's business strategy are as follows:
Developing and Expanding Markets. The Company traditionally has had a
strong presence in the southeastern and southwestern United States, areas in
which the Company believes the population and snack food consumption are growing
more rapidly than in the United States overall. In order to capitalize on the
growth in those markets, the Company intends to continue to strengthen its
presence in the southeastern and southwestern United States. The Company also
intends to strengthen its presence in metropolitan markets where the Company
believes it can (i) achieve higher overall gross profits through higher product
volume and local economies of scale, and (ii) increase its access to National
Accounts (as defined). The Company intends to strengthen its core markets and
develop additional markets through implementation of the other elements of its
business plan.
Strengthening the Company's Distribution Network. The Company has
undertaken a number of initiatives to strengthen and upgrade its distribution
network and continue to improve its relationship with its independent
distributors. First, the Company has developed a set of objective criteria by
which it evaluates the performance of its independent distributors and has held
its distributors accountable to such criteria since late 1995. Second, through
training programs, field sales support and marketing and merchandising
activities, the Company will continue to assist distributors in the development
of more efficient multi-route operations. Third, the Company will reassign
underperforming and/or underdeveloped distributor territories to more capable
independent distributors or incorporate them into the Company-owned route
network. Fourth, the Company will continue to develop the Company-owned and
independently-owned multi-route strategy in
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metropolitan markets, which management believes will allow the Company to
increase market share and improve margins in these markets. Finally, by
broadening the services available to distributors, such as its new centralized
customer service center, increased training programs and improved technical
support, the Company will continue to enhance its frequent interactions with its
distributors.
Increasing Introductions of New and Updated Products. The Company intends
to continue to develop and introduce new products and update existing products
and packaging, an effort which the new senior management team initiated in late
1995. The Company believes that the introduction of new and updated products is
necessary to meet changing consumer preferences and to attract new customers. As
part of this effort, the Company has and will continue to introduce new flavors,
redesign its packaging and modify packaging sizes and weights, all of which are
intended to update and unify the brand image.
Since 1995, the Company has introduced 61 new and 35 updated products, a
significant majority of which have been packaged and sold in Single-Serve Sizes.
Approximately 33.0% of the Company's manufactured products are new or have been
updated since 1995, and the Company plans to complete updating all of its
products by the end of 1998. For the 24-week period ended June 14, 1997, these
new or updated products represented 30.0% of total sales to distributors. In
addition, 51 of the 61 new product introductions have been successfully
integrated into the Company's product lines, a rate which management believes
exceeds the industry average.
For the 24-week period ended June 14, 1997, the Company's comprehensive
product updating process has contributed to a net sales increase of 19.0% for
those stock keeping units ("SKU's") which have been updated. For the same
period, the aggregate gross margin on new and updated products was approximately
1.0 percentage point higher than the existing product category gross margin. Net
sales from new, updated or repositioned products have increased from less than
2.0% of fiscal 1995 net sales to 4.0% of fiscal 1996 net sales, and 9.0% of net
sales for the 24-week period ended June 14, 1997. The Company's objective is to
derive approximately 13.0% of its annual net sales from new, updated and
repositioned products.
Expanding Distribution Channels and Outlets. The Company intends to
increase its presence in a number of distribution channels. The vending machine
channel continues to grow rapidly and the Company's newly-hired team of
experienced vending senior managers has and will continue to increase the
Company's penetration in this area. The Company intends to place particular
focus on developing metropolitan vending routes with an emphasis on full-line
vending accounts. Full-line vending accounts require the provision of other food
items, in addition to the snack food products manufactured by the Company, such
as coffee, cold beverages, cold foods and microwaveable products. In order to
address the additional requirements of full-line vending, the Company intends to
extend existing and develop new business arrangements with manufacturers of
these products.
The Company believes it can increase gross profit without expanding or
overextending its existing distributor network. The Company intends to achieve
this in part through introduction of a limited product line under a brand name
other than "Tom's" to provide the Company with access to national wholesale
distribution companies and retail trade accounts. This second brand will neither
require nor conflict with the merchandising services of the Company's
distributor network. The Company also intends to continue the expansion of its
successful contract packaging program, under which the Company manufactures and
packages snack food products for other snack food manufacturers ("Contract
Sales"), which permits the Company to make efficient use of its excess
manufacturing capacity.
Increasing Operating Efficiencies. The Company intends to continue its
initiatives to reduce the Company's expenses and, consequently, to improve its
operating margins. For example, the Company has reduced its general and
administrative expenses from 5.7% of net sales for fiscal 1995 to 5.1% of net
sales for fiscal 1996. Similarly, distribution costs as a percent of net sales
have been reduced from 7.5% for fiscal 1995 to 6.9% for fiscal 1996. Over the
same period of time, marketing and merchandising expenses have remained
unchanged as a percent of net sales while total distributor sales and sales to
National Accounts have increased. The Company attributes this to the development
of more efficient marketing and merchandising programs and intends to continue
such programs.
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Many of the Company's financial objectives have been achieved in part due
to a new philosophy of providing financial incentives to line managers, whose
compensation is now directly related to the financial performance of their areas
of responsibility. The Company also has begun to develop and implement more
sophisticated information systems to assist managers in achieving their
objectives. Additionally, the Company has established a sophisticated risk
management program which monitors the cost of raw materials, packaging, energy
and other commodities, enabling the Company to lower its costs and minimize the
impact of market price fluctuations on the Company's major expense categories.
THE 1996 REFINANCING
The Company refinanced its long-term debt obligations in August 1996 (the
"1996 Refinancing"). As a part of the 1996 Refinancing, the Company entered into
a $29.0 million senior loan facility (the "Congress Loan Facility") with
Congress Financial Corporation ("Congress"). At June 14, 1997, $8.9 million of
the Congress Loan Facility was outstanding (the "Congress Debt"). In addition,
TFH Corp. ("TFH") was formed by certain of the Company's investors to, among
other things, purchase: (i) the $52.3 million outstanding debt under a certain
loan agreement agented by the Canadian Imperial Bank of Commerce (the "CIBC
Debt"); and (ii) a certain subordinated obligation originally held by
Massachusetts General Life Insurance Company of $8.8 million, which included
$1.3 million in accrued interest thereon which was subsequently paid to TFH (the
"MassGeneral Debt"; together with the CIBC Debt, the "TFH Debt"). The terms of
the TFH Debt were modified to subordinate this debt to Congress, defer payments
of principal and interest owing thereon and increase the interest rate to 13.0%
per annum. The stockholders of TFH (the "TFH Stockholders") also caused letters
of credit to be posted in the aggregate original face principal amount of $10.0
million (the "TFH Stockholders' Letters of Credit") to replace a letter of
credit the Company originally caused to be posted in the same amount (the
"Company's Letter of Credit") to support certain of its obligations with respect
to the Industrial Development Revenue Bonds (as defined). The TFH Stockholders
assigned all reimbursement obligations against the Company to TFH and waived
their rights to reimbursement from the Company in connection with the TFH
Stockholders' Letters of Credit. TFH subordinated its right to reimbursement to
the Company's obligation to Congress under the Congress Loan Facility. In
exchange for these actions, TFH received 80.0% of the Company's outstanding
common stock ("Common Stock"). The remaining 20.0% of the Common Stock is held
by Tom's Foods Capital Corporation ("TFCC"). See "Certain Transactions."
THE 1997 REFINANCING
The Company used the net proceeds of the Old Note Offering ($56.8 million
after deduction of discounts and commissions to the Initial Purchaser and other
expenses of the Old Note Offering) plus certain of the Company's operating cash
(approximately $1.5 million at the consummation of the Old Note Offering) to:
(i) repay the Congress Debt (approximately $8.3 million at the time of the Old
Note Offering) and accrued interest thereon; (ii) repay $40.0 million of the
outstanding TFH Debt; and (iii) pay $10.0 million to STI Credit Corporation
("STI") in full satisfaction of the Company's outstanding and contingent
obligations to STI (the "STI Debt"). Upon the issuance of the Old Notes, the
Company exchanged: (i) $7.0 million of the TFH Debt for the Company's Class A
Preferred Stock; and (ii) the remainder of the TFH Debt (which was approximately
$21.7 million at the time of the Old Note Offering) for the Company's Class B
Preferred Stock (as defined). Under certain circumstances, including meeting a
2.25:1.0 Consolidated Fixed Charge Coverage Ratio, up to $10.0 million of the
Class A Preferred Stock may be exchanged for Exchange Notes at the option of the
Company. See "Use of Proceeds," "Description of Capital Stock" and "Description
of the Notes."
USE OF PROCEEDS
There will be no cash proceeds to the Company from the exchange pursuant to
the Exchange Offer.
EXECUTIVE OFFICE
The Company's executive office is located at 900 8th Street, Columbus,
Georgia 31902 and its telephone number is (706) 323-2721.
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<PAGE> 8
THE EXCHANGE OFFER
Registration Rights
Agreement..................... The Old Notes were sold by the Company on
October 14, 1997 (the "Issue Date") to
PaineWebber Incorporated (the "Initial
Purchaser"), which placed the Old Notes with
institutional investors. In connection
therewith, the Company and the Initial
Purchasers executed and delivered for the
benefit of the holders of the Old Notes an
exchange and registration rights agreement (the
"Registration Rights Agreement") providing,
among other things, for the Exchange Offer.
The Exchange Offer............ Exchange Notes are being offered in exchange
for a like principal amount of Old Notes. As of
the date hereof, $60.0 million aggregate
principal amount of Old Notes are outstanding.
The Company will issue the Exchange Notes
promptly following the Expiration Date. See
"Risk Factors -- Consequences of Failure to
Exchange."
Expiration Date............... 5:00 p.m., Eastern Standard Time, on
, 1997, unless the Exchange
Offer is extended as provided herein, in which
case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended. The maximum period of time
that the Exchange Offer will remain in effect
will be from the date hereof through
, 19 .
Interest...................... Interest on the Exchange Notes will be payable
semi-annually in arrears on May 1 and November
1 of each year, commencing on June 15, 1997.
The Exchange Notes will mature on November 1,
2004.
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. The Company reserves the right to
amend, terminate or extend the Exchange Offer
at any time prior to the Expiration Date upon
the occurrence of any such condition. See "The
Exchange Offer -- Conditions."
Procedures for Tendering Old
Notes......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
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 Old Notes and any
other required documentation to the exchange
agent (the "Exchange Agent") at the address set
forth herein. By executing the Letter of
Transmittal, each holder of Old Notes will
represent to the Company, among other things,
that (i) the Exchange Notes acquired pursuant
to the Exchange Offer by the holder and any
beneficial owners of Old Notes are being
obtained in the ordinary course of business of
the person receiving such Exchange Notes, (ii)
neither the holder nor such beneficial owner
has an arrangement or understanding with any
person to participate in the distribution of
such Exchange Notes, (iii) neither the holder
nor such beneficial owner nor any such other
person is engaging in or intends to engage in a
distribution of such Exchange Notes and (iv)
neither the holder nor such beneficial owner is
an "affiliate," as defined under Rule 405
promulgated under the Securities Act, of the
Company. Each broker-dealer that receives
Exchange Notes
5
<PAGE> 9
for its own account in exchange for Old Notes,
where such Old Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities (other
than Old Notes acquired directly from the
Company), may participate in the Exchange Offer
but may be deemed an "underwriter" under the
Securities Act and therefore, must acknowledge
in the Letter of Transmittal 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. See "The Exchange Offer --
Procedures for Tendering" and "Plan of
Distribution."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such beneficial owner's own
behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering his or her Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of registered ownership
may take considerable time. See "The Exchange
Offer -- Procedures for Tendering.
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights............. Tenders of Old Notes may be withdrawn as
provided herein at any time prior to 5:00 p.m.,
Eastern Standard Time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of
Tenders."
Acceptance of Old Notes and
Delivery of New Notes......... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., Eastern
Standard Time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer."
Use of Proceeds............... There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Federal Income Tax
Consequences.................. The Exchange of Old Notes for Exchange Notes
should not be a taxable exchange for Federal
income tax purposes. See "Certain Federal
Income Tax Considerations."
6
<PAGE> 10
Exchange Agent................ IBJ Schroder Bank & Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer. The address and telephone numbers of the
Exchange Agent are set forth under the caption
"The Exchange Offer -- Exchange Agent."
Consequences of Failure to
Exchange...................... Holders of Old Notes who do not exchange their
Old Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Notes
as set forth in the legend thereon as a
consequence of the issuance of the Old 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, Old Notes may not
be offered or sold unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws.
7
<PAGE> 11
SUMMARY DESCRIPTION OF THE NOTES
The Exchange Offer relates to $60.0 million aggregate principal amount of
Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes, except that the Exchange Notes will be
registered under the Securities Act and therefore, will not bear legends
restricting their transfer and will not contain certain provisions providing for
payment of liquidated damages under certain circumstances related to the
Registration Rights Agreement, which provisions will terminate as to all of the
Notes upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Old Notes and except as set forth in the
immediately preceding sentence, will be entitled to the benefits of the
Indenture, under which both the Old Notes were, and the Exchange Notes will be,
issued. See "Description of Notes."
Issuer........................ Tom's Foods Inc.
Securities Offered............ $60.0 million aggregate principal amount of
10 1/2% Senior Secured Notes due November 1,
2004.
Maturity...................... November 1, 2004.
Interest Payment Dates........ The Exchange Notes will bear interest at a rate
of 10 1/2% per annum. Interest on the Notes
will accrue from the date of issuance and will
be payable commencing on May 1, 1998 and
thereafter semi-annually in arrears on each
November 1 and May 1.
Optional Redemption........... Except as described below, the Company may not
redeem the Exchange Notes prior to November 1,
2001. On or after such date, the Company may
redeem the Exchange Notes, in whole or in part,
at the redemption prices set forth herein,
together with accrued and unpaid interest, if
any, to the date of redemption. Upon certain
Public Equity Offerings on or prior to November
1, 2000, the Company may redeem up to 30.0% of
the Exchange Notes then outstanding at a price
equal to 110.5% of the principal amount
thereof, together with accrued and unpaid
interest thereon, provided, that after giving
effect to such redemption at least $45.0
million principal amount of Exchange Notes
remain outstanding. See "Description of the
Notes -- Optional Redemption."
Change of Control............. Upon the occurrence of a Change of Control,
each holder of the Exchange Notes will have the
right to require the Company to purchase all or
a portion of such holder's Exchange Notes at a
purchase price in cash equal to 101.0% of the
principal amount thereof, together with accrued
and unpaid interest, if any, to the date of
purchase. There can be no assurance that in the
event of a Change of Control the Company will
have available funds sufficient to make any
purchase required by the holders of the
Exchange Notes. Neither the Company's Board of
Directors nor the trustee under the Indenture
(as defined) is permitted to waive the right of
the holders of the Notes to require the Company
to purchase the holders' Notes upon a Change of
Control. See "Description of the Notes --
Change of Control."
Ranking....................... The Exchange Notes will be senior obligations
of the Company and, as such, will rank pari
passu with all existing and future indebtedness
of the Company (other than indebtedness that is
expressly subordinated to the Exchange Notes)
including: (i) indebtedness under the Working
Capital Facility; and (ii) the $10.0 million
Industrial Development Revenue Bonds issued on
8
<PAGE> 12
the Company's behalf. As of June 14, 1997 and
as adjusted to give effect to the Old Note
Offering and the application of the net
proceeds therefrom, the repayment of a portion
of the TFH Debt, the exchange of the remaining
TFH Debt into Class A Preferred Stock and Class
B Preferred Stock and the satisfaction of the
STI Debt, the aggregate amount of outstanding
indebtedness, including the Class A Preferred
Stock, was $77.3 million (not including unused
commitments of $13.8 million under the Working
Capital Facility). See "1997 Refinancing" and
"Description of Other Senior Indebtedness."
Security...................... The Exchange Notes will be secured by a first
lien on and security interest in substantially
all of the assets and properties owned by the
Company excluding its receivables (at June 14,
1997, $17.3 million) and inventory (at June 14,
1997, $10.0 million) (and certain assets and
rights relating thereto), certain funds (at
June 14, 1997, $1.4 million) held in escrow for
the benefit of the holders of the Industrial
Development Revenue Bonds, the Company's real
property, buildings, improvements and fixtures
located at its plant in Knox County, Tennessee
(at June 14, 1997, $2.8 million), the Company's
property, plant and equipment located at its
plant in Taylor County, Florida (at June 14,
1997, $4.8 million) and certain other parcels
of real property (at June 14, 1997,
approximately $300,000). As of June 14, 1997,
the assets and properties owned by the Company,
other than the Excluded Collateral, had a book
value of $100.1 million. See "Description of
the Notes -- Security."
Restrictive Covenants......... The Indenture contains certain covenants,
including, but not limited to, covenants with
respect to the following matters: (i)
limitation on additional indebtedness; (ii)
limitation on restricted payments; (iii)
limitation on transactions with affiliates;
(iv) limitation on liens; (v) limitation on
sale of assets; (vi) limitation on issuances of
guarantees of and pledges for indebtedness;
(vii) restriction on transfer of assets; and
(viii) restriction on consolidations, mergers
and the sale of assets. See "Description of the
Notes -- Certain Covenants."
Registration Rights........... The Company entered into the Registration
Rights Agreement with the Initial Purchaser for
the benefit of all holders of Old Notes, in
which it agreed to consummate the Exchange
Offer within 150 days after the original
issuance of the Old Notes. If the Company does
not comply with certain covenants set forth in
the Registration Rights Agreement, the Company
will be obligated to pay additional interest to
holders of the Notes.
Absence of a Public Market for
the Notes..................... The Exchange Notes generally will be freely
transferable (subject to the restrictions
discussed elsewhere herein) but will be new
securities for which initially there will not
be a market. Accordingly, there can be no
assurance as to the development or liquidity of
any market for the Exchange Notes. The Company
does not intend to apply for listing of the
Exchange Notes on any national securities
exchange or for quotation through the National
Association of Securities Dealers Automated
Quotation System. See
9
<PAGE> 13
"Risk Factors -- Lack of Public Market;
Restrictions on Transferability."
Risk Factors.................. Prior to tendering Old Notes in the Exchange
Offer, holders of Old Notes should carefully
consider all of the information set forth in
this Prospectus and, in particular, should
evaluate the specific factors set forth under
"Risk Factors" beginning on page for risks
involved with an investment in the Notes.
Certain statements contained in this Prospectus
which are not historical facts are
forward-looking statements that involve risks
and uncertainties that could cause actual
results to differ materially from those in such
forward-looking statements. See "Risk Factors
-- Forward-Looking Statements" and
"Management's Discussion and Analysis of
Financial Condition and Results of Operations
-- Cautionary Statements Related to
Forward-Looking Statements."
\
10
<PAGE> 14
SUMMARY OF HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below are certain summary historical financial data for the
Company as of December 31, 1994, December 30, 1995, December 28, 1996, June 15,
1996 and June 14, 1997 and for fiscal years 1994, 1995 and 1996 and for the
24-week periods ended June 15, 1996 and June 14, 1997. Also set forth below are
certain pro forma financial data for the Company for fiscal 1996 and the 24-week
period ended June 14, 1997. The summary historical financial information for the
Company as of and for the full fiscal years indicated were derived from the
financial statements of the Company which were audited by Arthur Andersen LLP,
independent public accountants. The data for the 24-week periods ended and as of
June 15, 1996 and June 14, 1997 are unaudited, but in the opinion of the
Company's management, reflect all adjustments (which comprise only normal and
recurring accruals) necessary for a fair presentation of the results of
operations for such period. The results for the 24-week period ended June 14,
1997 may not be indicative of the results to be expected for fiscal 1997. The
summary historical financial information set forth below should be read in
conjunction with the financial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The as adjusted balance sheet
data are based on the historical financial information of the Company, adjusted
to give effect to the Offering as if it occurred on June 14, 1997. The pro forma
income statement data and pro forma other data are based on the summary
historical financial data adjusted to give effect to the Old Note Offering as if
it occurred at the beginning of the periods indicated. The unaudited pro forma
and as adjusted data do not purport to represent what the Company's financial
position or results of operations actually would have been if the Old Note
Offering in fact had occurred at the beginning of the periods indicated or as of
the specified date, or purport to project the Company's results of operations or
financial position for any future period or at any future date.
See summary historical and unaudited pro forma financial data on following page.
11
<PAGE> 15
The unaudited pro forma data reflect: (i) the elimination of interest
expense on the TFH Debt ($7.8 million for the year ended December 28, 1996 and
$3.6 million for the 24-week period ended June 14, 1997), the Congress Debt
($300,000 for the year ended December 28, 1996 and $500,000 for the 24-week
period ended June 14, 1997) and the STI Debt ($400,000 for the year ended
December 28, 1996 and $300,000 for the 24-week period ended June 14, 1997); (ii)
additional interest expense on the Notes and the Class A Preferred Stock ($7.1
million for the year ended December 28, 1996 and $3.2 million for the 24-week
period ended June 14, 1997); and (iii) the amortization of debt issuance costs
($400,000 for the year ended December 28, 1996 and $200,000 for the 24-week
period ended June 14, 1997). The as adjusted data reflect: (i) the receipt of
the gross proceeds from the sale of the Notes ($60.0 million) and the payment of
fees and expenses associated with the Old Note Offering ($3.2 million); (ii) the
retirement of the Congress Debt ($8.9 million) and accrued interest thereon
($100,000); (iii) the exchange of $26.0 million of TFH Debt and accrued interest
thereon for $7.0 million of Class A Preferred Stock and $19.0 million of Class B
Preferred Stock, the latter of which is included in shareholders' equity; (iv)
the repayment of the remaining $40.0 million of TFH Debt; and (v) the full
satisfaction of the STI Debt and accrued interest thereon ($10.0 million).
<TABLE>
<CAPTION>
PRO FORMA
------------
FISCAL YEAR ENDED 24-WEEK PERIOD ENDED FISCAL YEAR
------------------------------------------ --------------------------- ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 15, JUNE 14, DECEMBER 28,
1994 1995 1996 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $ 215,650 $ 198,340 $ 205,856 $ 91,811 $100,480 $ 205,856
Cost of goods sold........... (130,774) (125,396) (133,624) (59,398) (62,908) (133,624)
--------- --------- --------- -------- -------- ---------
Gross profit............... 84,876 72,944 72,232 32,413 37,572 72,232
Expenses and other income:
Selling and administrative
expenses................. (78,937) (75,783) (69,735) (30,688) (34,732) (69,735)
Amortization of goodwill
and intangible assets.... (1,678) (1,678) (1,678) (775) (774) (1,678)
Other income, net.......... 1,890 3,296 1,309 238 513 1,309
Restructuring and
nonrecurring charges..... -- (9,570)(a) (3,793)(b) -- -- (4,293)(b)(c)
--------- --------- --------- -------- -------- ---------
(78,725) (83,735) (73,897) (31,225) (34,993) (74,397)
--------- --------- --------- -------- -------- ---------
Income (loss) from
operations............... 6,151 (10,791) (1,665) 1,188 2,579 (2,165)
Interest expense, net........ (6,405) (7,870) (9,402) (3,687) (4,768) (8,443)(d)
--------- --------- --------- -------- -------- ---------
Loss before income taxes... (254) (18,661) (11,067) (2,499) (2,189) (10,608)
Provision (benefit) for
income taxes............... 500 (400) -- 228 231 --
--------- --------- --------- -------- -------- ---------
Net loss................... $ (754) $ (18,261) $ (11,067) $ (2,727) $ (2,420) $ (10,608)
========= ========= ========= ======== ======== =========
OTHER DATA:
EBITDA(e).................... $ 15,588 $ (1,196) $ 6,291 $ 5,073 $ 6,656 $ 5,791
Adjusted EBITDA(f)........... 15,588 8,374 10,084 5,073 6,656 10,084
Cash interest expense(g)..... 7,002 6,765 2,512 521 1,233 7,247(h)
Depreciation and
amortization............... 9,437 9,595 7,956 3,885 4,077 7,956
Capital expenditures......... 9,006 7,304 5,798 1,728 1,910 5,798
Ratio of Adjusted EBITDA to
net interest expense(i).... 2.43x 1.06x 1.07x 1.38x 1.40x 1.19x
Ratio of Adjusted EBITDA to
cash interest expense(i)... 2.23 1.24 4.01 9.74 5.40 1.39
Ratio of earnings to fixed
charges(j)(k).............. -- -- -- -- --
Pro forma ratio of earnings
to fixed charges(l)........ --
<CAPTION>
PRO FORMA
-------------
24-WEEK
PERIOD ENDED
JUNE 14,
1997
-------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C>
INCOME STATEMENT DATA:
Net sales.................... $100,480
Cost of goods sold........... (62,908)
--------
Gross profit............... 37,572
Expenses and other income:
Selling and administrative
expenses................. (34,732)
Amortization of goodwill
and intangible assets.... (774)
Other income, net.......... 513
Restructuring and
nonrecurring charges..... (500)(c)
--------
(35,493)
--------
Income (loss) from
operations............... 2,079
Interest expense, net........ (3,821)(d)
--------
Loss before income taxes... (1,742)
Provision (benefit) for
income taxes............... 231
--------
Net loss................... $ (1,973)
========
OTHER DATA:
EBITDA(e).................... $ 6,156
Adjusted EBITDA(f)........... 6,656
Cash interest expense(g)..... 3,445(h)
Depreciation and
amortization............... 4,077
Capital expenditures......... 1,910
Ratio of Adjusted EBITDA to
net interest expense(i).... 1.74x
Ratio of Adjusted EBITDA to
cash interest expense(i)... 1.93
Ratio of earnings to fixed
charges(j)(k)..............
Pro forma ratio of earnings
to fixed charges(l)........ --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 14, 1997
------------------------------------------ ------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, AS
1994 1995 1996 HISTORICAL ADJUSTED(M)
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 13,161 $(11,565) $ 7,362 $ 11,918 $ 11,600
Total assets...................................... 162,403 138,500 139,790 136,688 138,494
Total debt........................................ 70,054 75,297 88,516 93,277 70,336(n)
Class A Preferred Stock........................... -- -- -- -- 7,000
Total shareholders' equity........................ 45,130 27,586 16,519 14,099 33,119
</TABLE>
Footnotes on following page.
12
<PAGE> 16
Footnotes from previous page.
- - ---------------
(a) During 1995, the Company recorded restructuring and nonrecurring charges
totaling $9.6 million. The charges included the following: (i) a
nonrecurring charge related to the reorganization of and workforce reduction
in the administrative and sales functions ($4.2 million); (ii) a
nonrecurring charge related to the write-off of certain impaired assets
($8.6 million); (iii) a restructuring charge related to its distribution
system ($6.5 million) and; (iv) the reversal of the remainder of a prior
restructuring reserve originally established in 1991 ($9.7 million). See
Note 2 of "Notes to Financial Statements" included elsewhere in this
Prospectus and "Risk Factors -- History of Losses".
(b) In 1996, the Company recorded a nonrecurring charge ($3.8 million) for
expenses associated with the refinancing. See Note 4 of Notes to financial
statements included elsewhere in this Prospectus and "Risk Factors --
History of Losses".
(c) Includes a $500,000 one-time nonrecurring compensation charge to management
of the Company upon consummation of the Offering. TFH will contribute
$500,000 to the Company to fund the payment of this compensation charge. See
"Management -- Incentive Compensation Plans -- Executive Incentive Plan."
(d) The pro forma interest expense reflects: (i) the elimination of interest
expense on the TFH Debt ($7.8 million for the year ended December 28, 1996
and $3.6 million for the 24-week period ended June 14, 1997), the Congress
Debt ($300,000 for the year ended December 28, 1996 and $500,000 for the
24-week period ended June 14, 1997), and the STI Debt ($400,000 for the year
ended December 28, 1996 and $300,000 for the 24-week period ended June 14,
1997); (ii) additional interest expense on the Notes and Class A Preferred
Stock ($7.1 million for the year ended December 28, 1996 and $3.2 million
for the 24-week period ended June 14, 1997), and; (iii) the amortization of
debt issuance costs ($400,000 for the year ended December 28, 1996 and
$200,000 for the 24-week period ended June 14, 1997).
(e) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of income (loss) before income taxes plus interest
expense, depreciation and amortization. EBITDA is a widely accepted measure
of a Company's ability to incur and service debt, undertake capital
expenditures, and to meet working capital requirements. EBITDA is not a
measure of financial performance under generally accepted accounting
principles ("GAAP") and should not be considered an alternative either to
net income as an indicator of the Company's operating performance or as an
indicator of the Company's liquidity.
(f) "Adjusted EBITDA" is EBITDA excluding restructuring and nonrecurring charges
of $9.6 million for fiscal 1995 and $3.8 million for fiscal 1996 and on a
pro forma basis, the $500,000 nonrecurring compensation charge for both pro
forma periods presented.
(g) Cash interest expense is net interest expense less amounts not paid in cash
for the period indicated including, among other things, interest accrued on
the TFH Debt of $7.8 million in fiscal 1996 and $3.6 million for the 24-week
period ended June 14, 1997.
(h) Pro forma cash interest expense is historical cash interest expense adjusted
to include the interest on the Notes ($6.3 million for the year ended
December 28, 1996 and $2.9 million for the 24-week period ended June 14,
1997) and elimination of the cash paid for interest on the Congress Debt and
the STI Debt ($1.7 million for the year ended December 28, 1996 and $700,000
for the 24-week period ended June 14, 1997).
(i) Ratio of Adjusted EBITDA to net interest expense or cash interest expense
represents Adjusted EBITDA divided by net interest expense or cash interest
expense.
(j) For purpose of computing the ratio of earnings to fixed charges, "earnings"
consists of operating income (loss) before income taxes plus fixed charges,
and "fixed charges" consists of net interest expense and the portion of
rental expense deemed representative of the interest factor of approximately
$1.0 million, $900,000 and $800,000 for fiscal 1994, 1995 and 1996,
respectively, and $400,000 and $600,000 for the 24-week periods ended June
15, 1996 and June 14, 1997, respectively.
(k) The deficiency of the earnings to fixed charges was $700,000, $18.3 million,
$11.1 million, $2.7 million and $2.4 million for the years ended December
31, 1994, December 30, 1995 and December 28, 1996 and for the 24-week
periods ended June 15, 1996 and June 14, 1997, respectively.
(l) Pro forma ratio of earnings to fixed charges is calculated using the ratio
of earnings to fixed charges, adjusted to give effect to the Offering by
decreasing interest expense ($1.0 million and approximately $900,000 for the
year ended December 28, 1996 and the 24-week period ended June 14, 1997,
respectively), increasing amortization of debt issuance costs ($400,000 and
$200,000 for the year ended December 28, 1996 and the 24-week period ended
June 14, 1997, respectively) and including as a component of fixed charges
the pre-tax earnings that would be required to cover the Class B Preferred
Stock dividends ($4.4 million and $2.0 million for the year ended December
28, 1996 and the 24-week period ended June 14, 1997, respectively). The
deficiency of pro forma earnings to fixed charges was $11.1 million and $2.2
million for the year ended December 28, 1996 and the 24-week period ended
June 14, 1997, respectively.
(m) The as adjusted data reflect: (i) the receipt of the gross proceeds from the
sale of the Notes ($60.0 million) and the payment of fees and expenses
associated with the Old Note Offering ($3.2 million); (ii) the retirement of
the Congress Debt ($8.9 million) and accrued interest thereon ($100,000);
(iii) the exchange of $26.0 million of TFH Debt and accrued interest thereon
for $7.0 million of Class A Preferred Stock and $19.0 million of Class B
Preferred Stock, the latter of which is included in shareholders' equity;
(iv) the repayment of the remaining $40.0 million of TFH Debt; and (v) the
full satisfaction of the STI Debt and accrued interest thereon ($10.0
million).
(n) Excludes the Class A Preferred Stock of $7.0 million.
13
<PAGE> 17
RISK FACTORS
In evaluating a decision to tender Old Notes in the Exchange Offer, holders
of Old Notes should carefully consider the following risk factors as well as the
other information set forth elsewhere in this Prospectus.
CONSEQUENCES OF FAILURE TO EXCHANGE.
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old 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 Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based interpretations
by the Staff of the Commission set forth in no-action letter issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 promulgated under
the Securities Act) 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, such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such holder nor any such other person is
engaging in or intends to engage in a distribution of such Exchange Notes.
Notwithstanding the foregoing, 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 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 time to time, may be used by a broker-dealer
in connection with any resale of Exchange Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (other than Old Notes
acquired directly from the Company.) The Company has agreed that, for a period
of 180 days from the date of this Prospectus, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES.
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth below
under "The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date.
In addition, either (i) certificates from such Old Notes must be received by the
Exchange Agent along with a Letter of Transmittal or (ii) a timely confirmation
of a book-entry transfer of such Old Notes, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company pursuant to the
procedure for book-entry transfer described herein, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described herein. See "The Exchange Offer."
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
The Company has a significant amount of indebtedness. As of June 14, 1997,
on a pro forma basis, after giving effect to the Old Note Offering and the
application of the net proceeds therefrom, the repayment or exchange for
Preferred Stock of the TFH Debt, the repayment of the Congress Debt and the full
satisfaction of the STI Debt, the Company had $77.3 million of indebtedness
outstanding (including the Class A Preferred Stock and not including unused
commitments of $13.8 million under the Working Capital Facility). See "1997
Refinancing" and "Description of Other Senior Indebtedness." In addition, the
Company's indebtedness may increase in the future due to, among other things,
exchange of Class A Preferred Stock for
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Exchange Notes. The Company's ability to satisfy its financial obligations under
the Notes and under its other financing arrangements will depend upon its future
operating performance, which is subject to prevailing economic conditions, the
cost of borrowing and financial, business and other factors, many of which are
beyond the Company's control. Although the Company believes that cash flow from
operations and its available financing will provide adequate resources to
satisfy its working capital, anticipated capital expenditure and liquidity
requirements for at least the next four fiscal quarters, there is no assurance
that this will be the case. Additionally, the Company anticipates that it will
be required to refinance the Exchange Notes at maturity. No assurance can be
given that the Company will be able to refinance the Exchange Notes on terms
acceptable to it, if at all.
If the Company is unable to service its indebtedness, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company's current and future debt service obligations restrict certain
activities which may result in significant consequences to holders of the
Exchange Notes. The consequences of these restrictions could include the
following: (i) the Company's ability to obtain financing for future working
capital needs or acquisitions, or other purposes, may be limited; (ii) a
significant portion of the Company's cash flow from operations will be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
funds available for operations; and (iii) the Company may be more vulnerable to
adverse economic conditions than less leveraged competitors and, thus, may be
unable to withstand competitive pressures.
The Indenture contains restrictive covenants, including, among others,
covenants restricting additional liens, incurrence of additional indebtedness,
sale of assets, payment of dividends, transactions with affiliates, making
investments and certain other fundamental changes. See "Description of Notes --
Certain Covenants." In addition to these covenants, the Working Capital Loan
Agreement contains other restrictive covenants, including, among others, working
capital and tangible net worth tests. See "Description of Other Senior
Indebtedness." These restrictions could limit the Company's ability to conduct
its business. A failure to comply with the obligations contained in the Working
Capital Facility or the Indenture could result in an event of default under such
agreements, which could permit acceleration of the related debt and acceleration
of debt under other agreements that may contain cross-acceleration or
cross-default provisions.
HISTORY OF LOSSES
The Company has undertaken several operational and financial restructurings
in the past several years, and has incurred restructuring and nonrecurring
charges of $9.6 million and $3.8 million in fiscal 1995 and 1996, respectively.
In addition, the Company recorded net losses in fiscal 1992, 1993, 1994, 1995
and 1996. In fiscal 1991, the Company adopted a plan to restructure a
substantial portion of its distribution system. The plan involved converting
multi-route distributorships to single-route distributorships. In conjunction
with this plan, the Company recorded a restructuring charge of $29.8 million
(the "1991 Reserve") for costs and expenses related to the assumption of certain
distributor liabilities, losses from the temporary operation of Company-owned
routes and additional expenses.
During the third quarter of fiscal 1995, the Company shifted the focus from
the single-route distribution strategy to an emphasis on a multi-route
distribution system. As a result, the remaining 1991 Reserve of $9.6 million was
reversed. Management estimated that the Company would incur expenses of
approximately $6.5 million to restructure the distribution system and recorded a
new restructuring reserve in that amount. In addition to the $6.5 million
restructuring reserve charge, the Company recorded nonrecurring charges of
approximately $12.8 million associated with severance and other benefit costs
related to changes in the administrative and sales functions and the write-off
of certain assets.
The Company expects to continue to incur losses for the next several years
as it implements its new business strategy. There can be no assurance that the
Company's business strategy will be successful or that
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<PAGE> 19
the Company will generate net income in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business --
Business Strategy."
COMPETITION
The snack food industry is highly competitive. During the late 1980's and
the first half of the 1990's, several large industry participants contributed to
significant price competition within the snack food industry. Such price
competition significantly reduced profit margins for the industry and ultimately
led to the withdrawal or curtailment of operations of a number of snack food
companies. Similar competitive pressures or other factors could cause the
Company's products to lose market share or result in significant price erosion,
which would have a material adverse effect on the Company's results of
operations.
The Company's principal products compete against food and snack products
manufactured and sold by numerous national and regional companies, some of which
are substantially larger and have greater resources than the Company, including
Frito-Lay, the Procter & Gamble Company and Nabisco Inc. ("Nabisco"). The
Company may be at a disadvantage compared to other companies which have greater
financial and operational resources than the Company. There can be no assurance
that the Company will be able to successfully compete for future business. See
"Business -- Competition."
The Company's net sales and unit volume could be negatively affected by its
inability to maintain or increase prices, changes in geographic or product mix,
a general decline in snack food consumption or the decision of its wholesale
customers, retailers, distributors or consumers to purchase competitors'
products instead of the Company's products. Wholesaler, retailer, distributor
and consumer purchasing decisions are influenced by, among other things, the
perceived absolute or relative overall value of the Company's products,
including their quality or pricing, compared to competitive products. Unit
volume and net sales could also be affected by pricing, purchasing, financing,
operational, advertising or promotional decisions made by wholesalers and
retailers which could affect the supply, or consumer demand for, the Company's
products.
RELIANCE ON DISTRIBUTOR NETWORK
Sales to the Company's network of independent and Company-owned
distributors accounted for approximately 62.6% of the Company's net sales in
fiscal 1996. Additionally, the distribution network warehouses consigned
inventory, makes deliveries and services National Accounts. Approximately 25.6%
of the Company's total net sales in fiscal 1996 were attributed to National
Accounts net sales. As of June 14, 1997, independent distributors operated
approximately 90.8% of the routes in the Company's distribution network. Because
the Company's distributors market the Company's products directly to retailers,
recruiting, developing and retaining qualified distributors who will perform
their work in accordance with the Company's specifications and quality standards
is extremely important to the Company's performance and there can be no
assurance that the distributors will comply with the Company's specifications
and standards. The Company must continually identify and evaluate new
distributors and re-evaluate existing ones. There can be no assurance that the
Company will continue to be able to identify, develop and retain sufficient
numbers of qualified distributors. In addition, the distributors, while
independent, are the representatives of the Company in their markets, and thus a
weak distributor can negatively impact the perception of the Company and hurt
the Company's performance.
The Company's independent distributors are independent contractors and are
responsible for securing their own financing for their distribution and
marketing costs. In the past, certain of the Company's distributors have been
unable to secure additional financing and have had to cease operations. There
can be no assurance that the Company's distributors will be able to meet their
future financing requirements, and thus be able to continue to distribute the
Company's products.
As of June 14, 1997, 17 distributors have entered into the 1997 Distributor
Agreement, 335 of the distributors operate distributorships under previous
agreements with other terms and conditions and 563 of the distributors operate
under informal agreements or have not entered into any written distribution
agreement with the Company. Consequently, a significant number of distributors
are not contractually bound to continue their relationships with the Company.
See "Business -- Distribution."
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DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the efforts and
abilities of its executive officers and there can be no assurance that the
Company will be able to retain such officers. In particular, the loss of Mr.
Divin, the Company's President and Chief Executive Officer, Mr. Gaston, the
Company's Senior Vice President and Chief Financial Officer or Mr. Barker, the
Company's Senior Vice President -- Marketing, could have a material adverse
effect on the Company's operations. The Company does not maintain key-person
life insurance policies on any of its executives. See "Management."
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Exchange Notes will constitute a new issue of securities with no
established trading market. Although the Initial Purchaser has informed the
Company that it currently intends to make a market in the Exchange Notes, it is
not obligated to do so and any such market making may be discontinued at any
time without notice. The Company does not intend to apply for listing of the
Exchange Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System. Accordingly, there
can be no assurance as to the continuity or liquidity of any market for the
Notes and the Exchange Notes.
The liquidity of, and trading market for the Old Notes or the Exchange
Notes may also be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
LIMITATIONS ON SECURITY INTEREST
The Exchange Notes will be secured by a first priority lien and security
interest in the Collateral, subject to certain rights and interests of Congress
in intellectual property and certain assets of the Company under an
intercreditor agreement (the "Congress Intercreditor Agreement") between
Congress and the Trustee (as defined). See "Description of the Notes --
Security." As of June 14, 1997, the net book value of the Collateral was
approximately $100.1 million; however, the Company has not conducted an
appraisal of the Collateral. Some or all of the Collateral will be illiquid and
may have no readily ascertainable market value. Accordingly, there can be no
assurance that the Collateral could be sold or, if sold, that the value of the
Collateral will be sufficient to repay obligations under the Notes. The
Collateral release provisions of the Indenture permit the release of Collateral
without substituting collateral of equal value under certain limited
circumstances. See "Description of the Notes -- Security," and "-- Possession,
Use and Release of Collateral."
In addition, the Class A Preferred Stock may in certain instances be
exchanged into Exchange Notes. Such exchange would increase the principal amount
of Exchange Notes outstanding up to a maximum of $10.0 million, and in turn
would dilute the collateral coverage of the Exchange Notes. See "Description of
Capital Stock."
The right of the Trustee (as defined) under the Indenture and the Security
Documents (as defined in the Indenture) to foreclose upon the Collateral upon
the occurrence of an event of default on the Exchange Notes is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy or
reorganization case were to be commenced by or against the Company. Under
applicable bankruptcy law, secured creditors such as the holders of the Exchange
Notes are prohibited from foreclosing upon or disposing of a debtor's property
without prior bankruptcy court approval. Moreover, applicable bankruptcy law
permits the debtor to continue to retain and to use collateral even though the
debtor is in default under the applicable debt instruments, provided that the
secured creditor is given "adequate protection." The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
collateral. In view of the lack of a precise definition of the term "adequate
protection" and the broad discretionary powers of a bankruptcy court, it is
impossible to predict when the Trustee could obtain or dispose of the Collateral
or whether or to what extent holders of the Exchange Notes would be compensated
for any delay in payment or loss of value of the Collateral through the
requirement of "adequate protection." If a bankruptcy court were to determine
that the value of the Collateral were
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<PAGE> 21
insufficient to repay all amounts due in respect of the Exchange Notes, the
holders of Exchange Notes would become holders of "under secured claims" and, as
such, would be unable to receive payments of accruals of interest, costs and
attorneys' fees during the debtor's bankruptcy proceeding.
Certain of the Collateral is located in California, which has various legal
restrictions regarding the disposition of real property collateral, including
the following restrictions. Under California law and case law interpretations,
following a foreclosure sale of real property the right of a secured party to
obtain a deficiency judgment against an obligor (i.e., the difference between
the amount realized on foreclosure and the fair market value thereof) is
limited. No deficiency judgment is permitted under California law following a
non-judicial sale under the power of sale provision in a California deed of
trust. Other California statutes require that a secured party exhaust the
security afforded under the deed of trust by foreclosure before bringing a
contract claim against the obligor for recovery of the debt.
DISTRIBUTOR FINANCING ARRANGEMENTS WITH STI
Approximately 390 of the Company's distributors have financing arrangements
with STI. In the event these distributors default and STI subsequently
forecloses on some or all of the collateral pledged by such distributors, STI
will control certain of the Company's distribution assets and routes. STI will
have the ability to resell any assets and routes on which it forecloses. The
Company will have a first-option to purchase any such assets or routes at 40.0%
of the outstanding obligation to which such assets or routes relate. There can
be no assurance that the Company will have the ability to purchase such assets
or routes or that the Company will choose to do so. In the event the Company
cannot or does not purchase such assets or routes, STI can retain ownership or
sell the assets or routes to any other person, including a competitor of the
Company. The loss by the Company of the ability to control such assets or routes
could have a material adverse effect on the Company. In addition, in certain
circumstances STI can maintain deficiency claims against a distributor even
after foreclosing on the assets and routes pledged by such distributor to STI.
In such event, (a) the Company's relationship with its distributors generally
may suffer or (b) the Company may be subject to counterclaims by such
distributor.
COMPANY REPURCHASE REQUIREMENT
Subject to certain conditions, the Company is obligated to repurchase, for
either cash or a note, distributorships and distributorship assets from certain
independent distributors at a multiple of 3.5 times the amount of the average
annual Net Free Cash Flow (as defined in the 1997 Distributor Agreement) of the
distributorship, measured over the preceding three years. Net Free Cash Flow is
calculated by the Company in accordance with limitations and exclusions set
forth in the 1997 Distributor Agreement (as defined) and excludes debt service,
income taxes, dividends, owner withdrawals (other than reasonable management
compensation) and any receipts arising from service to the Company as a delivery
agent to National Accounts. This repurchase requirement is conditioned upon a
distributor's full compliance with all of the terms and conditions of the 1997
Distributor Agreement during the three full years preceding the date of the
request. As of June 14, 1997, 17 of the Company's distributors have entered into
the 1997 Distributor Agreement, the first of which became effective in early
1997. Consequently, the Company will not be required to repurchase
distributorships, if so requested, pursuant to the 1997 Distributor Agreement
until the first distributors become eligible in 2000. In the event a significant
portion of the Company's distributors were to request and then qualify for the
benefits of the Company's repurchase obligation, there can be no assurance that
the Company would have funds available to make such repurchases. The inability
to repurchase the routes could have a material adverse effect on the Company.
See "Business -- Distribution."
FOOD PRODUCT INDUSTRY OPERATIONS
The Company's continued success depends on the timely introduction of
successful new products. The Company generally does not develop new types of
snack foods, but instead creates products designed to meet existing consumer
demand based on proven product concepts already in the market. The
manufacturing, marketing and sale of either existing or newly developed food
products involve many risks and are subject to numerous factors outside of the
Company's control. There can be no assurance that the Company will realize
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<PAGE> 22
profits from any of its current product lines or from new products which may be
either developed or acquired by the Company in the future.
Food products companies are subject to a number of risks, including without
limitation: adverse changes in general economic conditions; evolving consumer
preferences; nutritional and health-related concerns; shortages in supply of and
fluctuations in raw materials prices; changes in food distribution dynamics such
as the increasing buying power of large supermarket chains and other retail
outlets; federal, state and local food processing and labeling controls;
consumer product liability claims; risks of product tampering or other quality
assurance concerns; and the availability and expense of liability insurance.
CHANGE OF CONTROL OFFER
If a Change of Control shall occur at any time, then each holder of the
Exchange Notes shall have the right to require that the Company purchase such
holder's Exchange Notes for cash in an amount equal to 101.0% of the principal
amount of such Exchange Notes plus accrued and unpaid interest, if any, to the
date of purchase pursuant to procedures set forth in the Indenture. There can be
no assurance that, in the event of a Change of Control, the Company will have
available funds sufficient to make any such purchases. The failure of the
Company upon a Change of Control to offer to purchase the Exchange Notes or to
consummate the purchase requested by the holders of the Exchange Notes would
constitute an event of default under the Indenture. Such event of default would
permit acceleration of indebtedness under other indebtedness agreements that
contain cross-acceleration or cross-default provisions. See "Description of
Other Senior Indebtedness" and "Description of the Notes -- Events of Default."
SIGNIFICANT CONTRACT CUSTOMERS AND AFFILIATED SUPPLIERS
In fiscal 1996, the Company derived 10.5% of its net sales from Contract
Sales and 5.0% of its net sales from Affiliated Products. The Company
anticipates that one of its Contract Sales customers, which accounted for $13.4
million of net sales in 1996, will decrease its purchases from the Company in
the latter part of fiscal 1997. Should such decrease occur, there can be no
assurance the Company will be able to locate a suitable replacement for the net
sales previously generated by this Contract Sales customer. In the event other
significant Contract Sales customers or Affiliated Suppliers terminate their
relationships with, or decrease purchases from the Company, there can be no
assurance the Company would find satisfactory replacements for such Contract
Sales customers or Affiliated Suppliers or would be able to otherwise replace
the revenue derived from the sale of such products.
TFH STOCKHOLDERS' LETTERS OF CREDIT
In connection with the 1988 Acquisition (as defined), the Company
indemnified its predecessor for the latter's obligations with respect to the
Industrial Development Revenue Bonds. The Company supported such indemnification
by posting the Company's Letter of Credit. As a part of the 1996 Refinancing,
the TFH Stockholders replaced the Company's Letter of Credit with the TFH
Stockholders' Letters of Credit. In connection with the 1996 Refinancing, the
TFH Stockholders assigned their reimbursement rights against the Company to TFH
and TFH agreed to subordinate its rights to Congress. TFH has waived any rights
or claims to reimbursement by the Company in connection with such TFH
Stockholders' Letters of Credit through December 31, 2005 and has subordinated
its rights to reimbursement to the Notes. Thereafter, subject to the terms of
the subordination, the Company will be obligated to reimburse TFH for any draws
which have been or are subsequently made on the TFH Stockholders' Letters of
Credit. There can be no assurance that, in the event of a draw on any of the TFH
Stockholders' Letters of Credit after 2005, the Company will have available
funds sufficient to reimburse TFH. The inability of the Company to so reimburse
TFH or the TFH Stockholders could have a material adverse effect on the Company.
See "Description of Other Senior Indebtedness -- Description of Industrial
Development Revenue Bonds" and "Certain Transactions."
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ENVIRONMENTAL CONCERNS
Real property pledged as security to a lender may be subject to known and
unforeseen environmental risks. Under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), under certain
limited circumstances, a lender may be considered a current owner or operator of
a property who can be held liable under CERCLA for certain response costs and
damages in the event of a release of hazardous materials from or on property.
There may be similar risks under various state laws and common law theories.
Under the Indenture, the Trustee may, prior to taking certain actions and
exercising certain remedies on behalf of the holders of the Notes, request that
the holders provide an indemnification against the Trustee's costs, expenses and
liabilities. It is possible that CERCLA or other cleanup costs could become a
liability of the Trustee and cause a loss to any holders that provided an
indemnification. In addition, holders may act directly rather than through the
Trustee, in specified circumstances, in order to pursue a remedy under the
Indenture. If the holders exercise that right, they could be deemed lenders that
are subject to the risks discussed above. See "-- Government Regulation."
AVAILABILITY AND PRICE OF RAW MATERIALS
The availability and cost of raw materials for the manufacture of the
Company's products, including potatoes, nuts, corn, flour and oils, are subject
to crop size and yield fluctuations caused by factors beyond the Company's
control, such as weather conditions and plant diseases. Additionally, the supply
of potatoes, nuts and other raw materials used in the Company's products could
be reduced by a determination of the United States Department of Agriculture
(the "USDA") or other government agency that certain pesticides, herbicides or
other chemicals used by growers have left harmful residues on portions of the
crop or that the crop has been contaminated. Shortages in the supply of and
increases in the prices of raw materials used by the Company in its products
could have an adverse impact on the Company's profitability. Occasionally, the
Company makes advance purchase commitments of raw materials significant to its
business in order to lock in what is perceived to be favorable pricing. In some
cases, the Company also seeks to protect itself from basic market price
fluctuations of products through hedging transactions. See "Business -- Sources
and Availability of Raw Materials."
The Company currently purchases its supply of peanuts indirectly from
approximately 175 independent farmers. The Company finances such purchases
through an arrangement with the Golden Peanut Company ("Golden Peanut"). If the
arrangement with Golden Peanut were terminated, the Company would have to seek
another source for financing its purchase of peanuts. There is no assurance that
the Company could find such a source. Delays or increased costs resulting
therefrom or from having to purchase peanuts in the open market could have a
material adverse effect on the Company.
The Company purchases all of its requirements for non-agricultural raw
materials, including packaging, on the open market. Although the Company has not
experienced any difficulty in obtaining adequate supplies of such items,
occasional periods of short supply of certain raw materials may occur. See
"Business -- Sources and Availability of Raw Materials."
SEASONALITY; CASH NEEDS
The Company has greater cash needs in its first and second fiscal quarters
due to purchases of peanuts and the payment of distributor and trade account
bonuses and management incentives and to a lesser extent, seasonal sales
increases. Although management believes that the availability under the new
Working Capital Facility and its arrangement with Golden Peanut, together with
the cash generated from operations, will be adequate to provide for its cash
requirements, there can be no assurance that such funds will be adequate in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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GOVERNMENT 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 manufacturing, food regulation, product
labeling, advertising and the environment. Compliance with current federal,
state and local laws and regulations is not expected to have a material adverse
effect upon the earnings or competitive position of the Company. 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. See "Business
- - -- Government Regulation."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Offering Memorandum which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in such forward-looking statements. These forward-looking statements
are based on assumptions which the Company believes are reasonable. However,
there can be no assurance that any forward-looking statement will be realized or
that actual results will not be significantly higher or lower than set forth in
such forward-looking statement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Cautionary Statements Related
to Forward-Looking Statements."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on October 14, 1997 to the Initial
Purchaser, which placed the Old Notes with institutional investors. In
connection therewith, the Company and the Initial Purchaser entered into the
Registration Rights Agreement, pursuant to which the Company agreed that it
would, at its cost, for the benefit of the holders of the Old Notes (the
"Holders"), (i) within 60 days after the date of original issuance of the Old
Notes (the "Filing Date"), file with the Commission the Registration Statement
(of which this Prospectus forms a part) under the Securities Act with respect to
the Exchange Offer to exchange the Old Notes for Exchange Notes of the Company
terms substantially identical in all material respects to the Old Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions) and (ii) cause such Registration Statement to be declared
effective under the Securities Act within 150 days following the date of
original issuance of the Old Notes. Upon the Registration Statement being
declared effective, the Company will offer the Exchange Notes in exchange for
surrender of the Old Notes. The Company will keep the Exchange Offer open for
not less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the Holders. For each of the Old Notes
surrendered to the Company pursuant to the Exchange Offer, the Holder who
surrendered such Old Notes will receive an Exchange Note having a principal
amount equal to that of the surrendered Notes. Interest on each Exchange Note
will accrue (A) from the later of (i) the last interest payment date on which
interest was paid on the Old Note surrendered in exchange therefor, or (ii) if
the Old Note is surrendered for exchange on a date in a period which includes
the record date for an interest payment date to occur on or after the date of
such exchange and as to which interest will be paid, the date of such interest
payment date or (B) if no interest has been paid on the Old Notes, from the date
of original issuance of the Old Notes.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for sale, resold or otherwise transferred by any holder with
compliance with the registration and prospectus deliver provisions of the
Securities Act. Instead, under existing interpretations of the Commission
contained in several no-action letters to third parties, management of the
Company believes the Exchange Notes will be freely transferable by holders
thereof (other than affiliates of the Company) after the Exchange Offer without
further registration under the Securities Act; provided, however, that each
Holder that wishes to exchange its Old Notes for Exchange Notes will be required
to represent (i) that any Exchange Notes to be received by it will be acquired
in the ordinary course of its business, (ii) that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of Securities
Act) of the Exchange Notes in violation of the Securities Act, (iii) that it is
not an "affiliate" (as defined in Rule 405 promulgated under the Securities Act)
of the Company, (iv) if such Holder is not a broker-dealer, that it is not
engaged in, and does not intend to engage in, the distribution of Exchange Notes
and (v) if such Holder is a broker-dealer (a "Participating Broker-Dealer") that
will receive Exchange Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making or other trading activities, that it
will deliver this Prospectus in connection with any resale of such Exchange
Notes. The Company will agree to make available, during the period required by
the Securities Act, this Prospectus for use by Participating Broker-Dealers and
other persons, if any, with similar prospectus delivery requirements for use in
connection with any resale of Exchange Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 195
days of the date of the original issuance of the Old Notes, (iii) in certain
circumstances, certain holders of unregistered Exchange Notes so request, or
(iv) in the case of any Holder that participates in the Exchange Offer, such
Holder does not receive Exchange Notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other than due
solely to the status of such Holder as an affiliate of the Company or within the
meaning of the Securities Act), then in each case, the Company will (x) promptly
deliver to the Holders and the Trustee written notice thereof and (y) at their
sole expense, (a) as promptly as practicable, file a shelf registration
statement covering resales of
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<PAGE> 26
the Old Notes (the "Shelf Registration Statement"), (b) use their best efforts
to cause the Shelf Registration Statement to be declared effective under
Securities Act and (c) use their best efforts to keep effective the Shelf
Registration Statement until the earlier of three years after its effective date
or such time as all of the applicable Old Notes have been sold thereunder. The
Company will, in the event that a Shelf Registration Statement is filed, provide
to each Holder copies of the prospectus that is a part of the Shelf Registration
Statement, notify each such Holder when the Shelf Registration Statement for the
Old Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A Holder that sells Old Notes
pursuant to the Shelf Registration Statement will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
Securities Act in connection with such sales and will be bound by the provisions
of the Registration Rights Agreement that are applicable to such a Holder
(including certain indemnification rights and obligations).
If the Company fails to comply with the above provision or if the
Registration Statement or the Shelf Registration Statement fails to become
effective, then, as liquidated damages, additional interest (the "Additional
Interest") shall become payable in respect of the Old Notes as follows:
(i) if (A) neither the Registration Statement nor the Shelf
Registration Statement is filed with the Commission on or prior to the
Filing Date or (B) notwithstanding that the Company has consummated or will
consummate an Exchange Offer, the Company is required to file a Shelf
Registration Statement and such Shelf Registration Statement is not filed
on or prior to the date required by the Registration Rights Agreement, then
commencing on the day after either such required filing date, Additional
Interest shall accrue on the principal amount of the Old Notes at a rate of
0.50% per annum for the first 90 days immediately following each such
filing date, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period; or
(ii) if (A) neither the Registration Statement nor the Shelf
Registration Statement is declared effective by the Commission on or prior
to 150 days after the applicable filing date or (B) notwithstanding that
the Company has consummated or will consummate an Exchange Offer, the
Company is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the Commission on or
prior to the 90th day following the date such Shelf Registration Statement
was filed, then, commencing on the day after the required effectiveness
date, Additional Interest shall accrue on the principal amount of the Old
Notes at a rate of 0.50% per annum for the first 90 days immediately
following such date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) the Company has not exchanged Exchange Notes for all Old
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 45th day after the date on which the Registration
Statement was declared effective or (B) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary from the date such Shelf Registration Statement was
declared effective (other than after such time as all Old Notes have been
disposed of thereunder), then Additional Interest shall accrue on the
principal amount of the Old Notes at a rate of 0.50% per annum for the
first 90 days commencing on (x) the 46th day after such Exchange Offer
effective date, in the case of (A) above, or (y) the day such Shelf
Registration Statement ceases to be effective in the case of (B) above,
such Additional Interest rate increasing by an additional 0.50% per annum
at the beginning of each subsequent 90-day period; provided, however, that
the Additional Interest rate on the Notes may not exceed in the aggregate
1.00% per annum; provided, further, however, that (1) upon the filing of
the Registration Statement or a Shelf Registration Statement (in the case
of clause (i) above), (2) upon the effectiveness of the Registration
Statement or a Shelf Registration Statement (in the case of clause (ii)
above), or (3) upon the exchange of Exchange Notes for all Old Notes
tendered (in the case of clause (iii) (A) herein), or upon the
effectiveness of the Shelf Registration Statement which had ceased to
remain effective (in the case of clause (iii) (B) herein), Additional
Interest on the Old Notes as a result of such clause (or the relevant
subclause thereof), as the case may be, shall cease to accrue.
23
<PAGE> 27
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on May 15 and November 15 of each year to
the Holders of record on the preceding May 1 or November 1, respectively.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, Holders who were eligible to participate in the Exchange Offer but who
did not tender their Old Notes will not be entitled to certain rights under the
Registration Rights Agreement and such Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Old Notes could be adversely affected.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m. Eastern Standard Time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the Exchange Notes
have been registered under the Securities Act and therefore will not bear
legends restricting their transfer and will not contain certain provisions
providing for payment of liquidated damages under certain circumstances relating
to the Registration Rights Agreement, which provisions will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Old Notes and will be entitled to the benefits of the Indenture
under which the Old Notes were, and the Exchange Notes will be, issued.
As of the date of this Prospectus, $60.0 million aggregate principal amount
of the Old Notes are outstanding. The Company has fixed the close of business on
, 19 , as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will be sent. As of such date, there was
registered Holder.
Holders do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law (the "DGCL") or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer 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 Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
24
<PAGE> 28
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall 5:00 p.m., Eastern Standard Time, on
, 199 , unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral notice (confirmed in writing) or written notice
and will make a public announcement thereof prior to 9:00 a.m., Eastern Standard
Time, on the next business day after each previously scheduled expiration date.
The Company reserves the right, in its sole discretion: (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer, by giving oral notice (confirmed in writing) or
written notice of such delay, extension or termination to the Exchange Agent; or
(ii) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment by means of a Prospectus
supplement that will be distributed to the registered Holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during such
five-to-ten business-day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcements, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING
The tender of Old Notes by a Holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by the Company will
constitute a binding 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. This Prospectus, together with the Letter of Transmittal, will
first be sent on or about , 199 , to all Holders of Old Notes
known to the Company and the Exchange Agent.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents, to
the Exchange Agent prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company, (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the Holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Old Notes, Letter of Transmittal and other required documents
must be received by the Exchange Agent at the address set forth below under "--
Exchange Agent" prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder and delivery will be deemed made only when actually received by the
Exchange Agent. Instead of delivery by mail, it is recommended that Holders use
an overnight or hand delivery service. If such delivery is by mail, it is
recommended that registered mail, return receipt requested, be used and proper
insurance be obtained. In all cases, sufficient time should be allowed to assure
timely delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Old Notes should be sent to the Company.
25
<PAGE> 29
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered Holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined) unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered Holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 promulgated under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company, among other
things, that (i) the Exchange Notes acquired by the Holder and any beneficial
owners of Old Notes pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such Exchange Notes, (ii)
neither the Holder nor such beneficial owner has an arrangement or understanding
with any person to participate in the distribution of such Exchange Notes, (iii)
neither the Holder nor such beneficial owner nor any such person is engaging in
or intends to engage in a distribution of such Exchange Notes, and (iv) neither
the Holder nor any such other person is an "affiliate," as defined under Rule
405 promulgated under the Securities Act, of the Company. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (other than Old Notes
acquired directly from the Company), may participate in the
26
<PAGE> 30
Exchange Offer but may be deemed an "underwriter" under the Securities Act and,
therefore, must acknowledge in the Letter of Transmittal that it will deliver a
Prospectus in connection with any re-sale 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. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedure for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimiles thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Deliver (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the certificates(s)
representing the Old Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender the Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., Eastern Standard Time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the name
of the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes
27
<PAGE> 31
into the name of the persons withdrawing the tender, and (iv) specify the name
in which any such Old Notes are to be registered, if different from that of the
Depositor. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, which determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly re-tendered.
Properly withdrawn Old Notes may be re-tendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Boo-Entry Transfer Facility pursuant to
the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Company to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the Exchange
Offer.
If the Company receives an opinion of counsel that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering Holders (or, in the case of Old Notes
tendered by book-entry transfer provisions described above, such Old Notes will
be credited to an account maintained with such Book-Entry Transfer Facility),
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Old Notes (see "-- Withdrawal of Tenders"), or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the significance
of the waiver and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during five-to-ten-business-day period.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of
28
<PAGE> 32
Transmittal and requests for Notice of Guaranteed Delivery should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail or Hand/Overnight Delivery: By Facsimile:
IBJ Schroder Bank & Trust Company (212) 858-2952
One State Street
New York, New York 10004 Confirm by Telephone:
(212) 858-2657
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting fees and legal fees, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value less accrued original issue discount, as reflected in
the Company's accounting records on the date of the exchange. Accordingly, no
gain or loss for accounting purposes will be recognized as a result of
consummation of the Exchange Offer. The expenses of the Exchange Offer and the
unamortized expenses related to the issuance of the Old Notes will be amortized
over the term of the Exchange Notes.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the Exchange Offer. The
net proceeds from the Old Notes Offering were approximately $56.8 million (after
deduction of discounts to the Initial Purchaser and other expenses). Such net
proceeds, plus certain of the Company's operating cash were used to (i) repay
the Congress Debt and accrued interest thereon; (ii) repay $40.0 million of the
outstanding TFH Debt; and (iii) pay $10.0 million in full satisfaction of the
STI Debt.
29
<PAGE> 33
CAPITALIZATION
The following table sets forth the historical short-term debt and
capitalization of the Company as of June 14, 1997 and the capitalization of the
Company to give effect to the Old Note Offering and the application of the net
proceeds therefrom, as if it occurred on June 14, 1997. This table should be
read in conjunction with the historical and pro forma financial statements and
the related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 14, 1997
--------------------------
AS
HISTORICAL ADJUSTED(A)
----------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Short-term debt:
Current portion of Congress Debt.......................... $ 1,803 $ --
Current portion of capital lease and other debt
obligations............................................ 25 25
-------- --------
Total short-term debt.................................. $ 1,828 $ 25
======== ========
Long-term debt:
TFH Debt.................................................. $ 59,828 $ --
Accrued interest due to TFH............................... 6,192 --
Senior Secured Notes...................................... -- 60,000
Congress Debt............................................. 7,135 --
Industrial Development Revenue Bonds...................... 10,000 10,000
Note payable to STI....................................... 7,983 --
Capital lease and other debt obligations.................. 311 311
-------- --------
Total long-term debt................................... 91,449 70,311
Exchangeable Preferred Stock, $.01 par value -- 7,000 shares
authorized, Class A, 7,000 shares issued and
outstanding............................................... -- 7,000
Shareholders' equity:
Preferred Stock, $.01 par value -- 21,737 shares
authorized, Class B, 21,737 shares issued and
outstanding............................................ -- 19,020
Common Stock, $.01 par value -- 10,000 shares authorized,
5,000 shares issued and outstanding.................... -- --
Additional paid-in capital................................ 42,725 43,725
Accumulated deficit....................................... (28,626) (29,626)
-------- --------
Total shareholders' equity............................. 14,099 33,119
-------- --------
Total capitalization........................................ $105,548 $110,430
======== ========
</TABLE>
- - ---------------
(a) The Company used the net proceeds from the Old Note Offering to repay the
Congress Debt and accrued interest thereon, to repay a portion of the TFH
Debt and accrued interest thereon, and to fully satisfy the STI Debt and
accrued interest thereon. The TFH Debt not otherwise repaid from the
proceeds of the Old Note Offering were exchanged for Class A Preferred Stock
and Class B Preferred Stock. See "1997 Refinancing."
30
<PAGE> 34
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are certain summary historical financial data for the
Company as of and for the 24-week periods ended June 14, 1997 and June 15, 1996,
fiscal years 1996, 1995 and 1994, and for the period from April 25, 1993 through
January 1, 1994, as well as selected historical financial data for the Company
prior to the 1993 Refinancing (the "Predecessor") as of April 24, 1993 and
January 2, 1993 and for the period from January 3, 1993 through April 24, 1993
and fiscal 1992. The selected historical financial information for the Company
and the Predecessor as of and for the full fiscal years and periods indicated
were derived from the financial statements for the Company which were audited by
Arthur Andersen LLP, independent public accountants. The data as of and for the
24-week periods ended June 14, 1997 and June 15, 1996 are unaudited, but in the
opinion of the Company's management, reflect all adjustments (which comprise
only normal and recurring accruals) necessary for a fair presentation of the
financial position of the results of operations for such periods. The results
for the 24-week period ended June 14, 1997 may not be indicative of the results
to be expected for the 1997 fiscal year. The summary historical financial
information set forth below should be read in conjunction with the financial
statements of the Company and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. Financial data of the Company subsequent to the 1993
Refinancing reflect the purchase accounting treatment of the 1993 Refinancing.
Accordingly, the financial data of the Predecessor and the Company are not
comparable in all material respects, since such data reflect the financial
positions and results of operations of these two separate entities.
Selected historical financial data on following page.
31
<PAGE> 35
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 3, APRIL 25,
FISCAL YEAR 1993 1993 FISCAL YEAR ENDED
ENDED THROUGH THROUGH -------------------------------------------
JANUARY 2, APRIL 24, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28,
1993 1993 1994 1994 1995 1996
(DOLLARS IN THOUSANDS) ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $ 224,553 $ 67,073 $ 149,730 $ 215,650 $ 198,340 $ 205,856
Costs of goods sold.... (132,455) (39,675) (88,391) (130,774) (125,396) (133,624)
------------ ------------ ------------ ------------ ------------ ------------
Gross profit......... 92,098 27,398 61,339 84,876 72,944 72,232
Expenses and other
income:
Selling and
administrative
expenses........... (77,875) (25,165) (52,060) (78,937) (75,783) (69,735)
Amortization of
goodwill and
intangible
assets............. (2,385) (835) (1,051) (1,678) (1,678) (1,678)
Other income, net.... 1,207 379 1,958 1,890 3,296 1,309
Restructuring and
nonrecurring
charges............ (1,000) (1,945) -- -- (9,570)(a) (3,793)(b)
------------ ------------ ------------ ------------ ------------ ------------
(80,053) (27,566) (51,153) (78,725) (83,735) (73,897)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations......... 12,045 (168) 10,186 6,151 (10,791) (1,665)
Interest expense,
net.................. (15,696) (5,362) (3,859) (6,405) (7,870) (9,402)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before
provision (benefit)
for income taxes... (3,651) (5,530) 6,327 (254) (18,661) (11,067)
Provision for (benefit
from) income taxes... -- -- 2,541 500 (400) --
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss).... $ (3,651) $ (5,530) $ 3,786 $ (754) $ (18,261) $ (11,067)
============ ============ ============ ============ ============ ============
OTHER DATA:
EBITDA(c).............. $ 25,646 $ 4,091 $ 15,849 $ 15,588 $ (1,196) $ 6,291
Adjusted EBITDA(d)..... 26,646 6,036 15,849 15,588 8,374 10,084
Cash interest
expense(e)........... 11,777 3,323 5,365 7,002 6,765 2,512
Depreciation and
amortization......... 13,601 4,259 5,663 9,437 9,595 7,956
Capital expenditures... 5,661 1,794 4,625 9,006 7,304 5,798
Ratio of Adjusted
EBITDA to net
interest
expense(f)........... 1.70x 1.13x 4.11x 2.43x 1.06x 1.07x
Ratio of Adjusted
EBITDA to cash
interest
expense(f)........... 2.26 1.82 2.95 2.23 1.24 4.01
Ratio of earnings to
fixed
charges(g)(h)........ -- -- 1.85 -- -- --
BALANCE SHEET DATA (AS
OF END OF PERIOD):
Working capital
(deficit)............ $ (125,132)(i) $ (129,374)(i) $ 14,455 $ 13,161 $ (11,565) $ 7,362
Total assets........... 147,360 145,559 161,629 162,403 138,500 139,790
Total debt............. 136,872 136,845 72,906 70,054 75,297 88,516
Class A Preferred
Stock................ -- -- -- -- --
Total shareholders'
(deficit) equity..... (52,642) (57,652) 46,601 45,130 27,586 16,519
<CAPTION>
24-WEEK PERIOD ENDED
---------------------------
JUNE 15, JUNE 14,
1996 1997
(DOLLARS IN THOUSANDS) ------------ ------------
(UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $ 91,811 $ 100,480
Costs of goods sold.... (59,398) (62,908)
------------ ------------
Gross profit......... 32,413 37,572
Expenses and other
income:
Selling and
administrative
expenses........... (30,688) (34,732)
Amortization of
goodwill and
intangible
assets............. (775) (774)
Other income, net.... 238 513
Restructuring and
nonrecurring
charges............ -- --
------------ ------------
(31,225) (34,993)
------------ ------------
Income (loss) from
operations......... 1,188 2,579
Interest expense,
net.................. (3,687) (4,768)
------------ ------------
Income (loss) before
provision (benefit)
for income taxes... (2,499) (2,189)
Provision for (benefit
from) income taxes... 228 231
------------ ------------
Net income (loss).... $ (2,727) (2,420)
============ ============
OTHER DATA:
EBITDA(c).............. $ 5,073 $ 6,656
Adjusted EBITDA(d)..... 5,073 6,656
Cash interest
expense(e)........... 521 1,233
Depreciation and
amortization......... 3,885 4,077
Capital expenditures... 1,728 1,910
Ratio of Adjusted
EBITDA to net
interest
expense(f)........... 1.38x 1.40x
Ratio of Adjusted
EBITDA to cash
interest
expense(f)........... 9.74 5.40
Ratio of earnings to
fixed
charges(g)(h)........ -- --
BALANCE SHEET DATA (AS
OF END OF PERIOD):
Working capital
(deficit)............ $ 2,701 $ 11,918
Total assets........... 143,409 136,688
Total debt............. 76,170 93,277
Class A Preferred
Stock................ -- --
Total shareholders'
(deficit) equity..... 24,859 14,099
</TABLE>
Footnotes on following page.
32
<PAGE> 36
Footnotes from previous page.
- - ---------------
(a) During 1995, the Company recorded restructuring and nonrecurring charges
totaling $9.6 million. The charges included the following: (i) a
nonrecurring charge related to the reorganization of and reduction in
workforce and the administrative and sales functions ($4.2 million); (ii)
write-off of certain impaired assets ($8.6 million); (iii) a restructuring
charge related to its distribution system ($6.5 million); and (iv) the
reversal of the remainder of a prior restructuring reserve originally
established in 1991 ($9.7 million). See Note 2 to Notes to financial
statements included elsewhere in this Prospectus and "Risk Factors --
History of Losses".
(b) In 1996, the Company recorded a nonrecurring charge ($3.8 million) for
expenses associated with the refinancing of the Company's debt. See Note 4
of notes to financial statements included elsewhere in this Offering
Memorandum and "Risk Factors -- History of Losses".
(c) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of income (loss) before income taxes plus interest
expense, depreciation and amortization. EBITDA is a widely accepted measure
of a Company's ability to incur and service debt, to undertake capital
expenditures, and to meet working capital requirements. EBITDA is not a
measure of financial performance under generally accepted accounting
principles ("GAAP") and should not be considered an alternative either to
net income as an indicator of the Company's operating performance or as an
indicator of the Company's liquidity.
(d) "Adjusted EBITDA" is EBITDA excluding restructuring and nonrecurring charges
of $1.0 million for fiscal 1992, $1.9 million for the period from January 3,
1993 through April 24, 1993, $9.6 million for fiscal 1995 and $3.8 million
for fiscal 1996.
(e) Cash interest expense is net interest expense less amounts not paid in cash
for the period indicated including, among other things, interest accrued on
the TFH Debt of $7.8 million in fiscal 1996 and $3.6 million for the 24-week
period ended June 14, 1997.
(f) Ratio of Adjusted EBITDA to interest expense or cash interest expense
represents Adjusted EBITDA divided by net interest expense or cash interest
expense.
(g) For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consists of operating income (loss) before income taxes plus
fixed charges, and "fixed charges" consists of net interest expense and the
portion of rental expense deemed representative of the interest factor of
approximately $600,000 for fiscal 1992, $300,000 for the period from January
3, 1993 through April 24, 1993, $600,000 for the period from April 25, 1993
through January 1, 1994, $1.0 million for fiscal 1994, $900,000 for fiscal
1995, $800,000 for fiscal 1996, $400,000 for the 24 week period ended June
15, 1996 and $600,000 for the 24 week period ended June 14, 1997.
(h) The deficiency of the earnings to fixed charges was $3.7 million, $5.5
million, $700,000, $18.3 million, $11.1 million, $2.7 million and $2.4
million for the year ended January 2, 1993, for the period from January 3,
1993 through April 24, 1993, for the years ended December 31, 1994, December
30, 1995 and December 28, 1996 and for the 24 week periods ended June 15,
1996 and June 14, 1997, respectively.
(i) Includes debt classified in current liabilities of $136.0 million and $136.1
million at January 2, 1993 and April 24, 1993, respectively.
33
<PAGE> 37
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data of the Company as of and for the
24-week period ended June 14, 1997 and for the year ended December 28, 1996 are
based on the historical financial information of the Company, adjusted to give
effect to the Offering as if it had occurred at the beginning of the periods
indicated. The pro forma data do not purport to represent what the Company's
financial position or results of operations actually would have been if the Old
Note Offering in fact had occurred at the beginning of the periods indicated, or
purport to project the Company's results of operations for any future period or
at any future date.
The pro forma data reflect: (i) the elimination of interest expense on the
TFH Debt ($7.8 million for the year ended December 28, 1996 and $3.6 million for
the 24-week period ended June 14, 1997), the Congress Debt ($300,000 for the
year ended December 28, 1996 and $500,000 for the 24 week period ended June 14,
1997), and the STI Debt ($400,000 for the year ended December 28, 1996 and
$300,000 for the 24-week period ended June 14, 1997); (ii) additional interest
expense on the Notes and the Class A Preferred Stock ($7.1 million for the year
ended December 28, 1996 and $3.2 million for the 24 week period ended June 14,
1997); and (iii) the amortization of debt issuance costs ($400,000 for the year
ended December 28, 1996 and $200,000 for the 24-week period ended June 14,
1997).
<TABLE>
<CAPTION>
FISCAL YEAR 24-WEEK
ENDED PERIOD ENDED
DECEMBER 28, JUNE 14,
1996 1997
(DOLLARS IN THOUSANDS) ------------ ------------
(UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $ 205,856 $ 100,480
Cost of goods sold.......................................... (133,624) (62,908)
------------- -------------
Gross profit.............................................. 72,232 37,572
Expenses and other income:
Selling and administrative expenses....................... (69,735) (34,732)
Amortization of goodwill and intangible assets............ (1,678) (774)
Other income, net......................................... 1,309 513
Restructuring and nonrecurring charges.................... (4,293)(a)(b) (500)(b)
------------- -------------
(74,397) (35,493)
------------- -------------
Income (loss) from operations............................. (2,165) 2,079
Interest expense, net(c).................................... (8,443) (3,821)
------------- -------------
Loss before income taxes.................................. (10,608) (1,742)
Provision for income taxes.................................. -- 231
------------- -------------
Net loss.................................................. $ (10,608) $ (1,973)
============= =============
OTHER DATA:
EBITDA(d)................................................... $ 5,791 $ 6,156
Adjusted EBITDA(e).......................................... 10,084 6,656
Cash interest expense(f).................................... 7,247 3,445
Depreciation and amortization............................... 7,956 4,077
Capital expenditures........................................ 5,798 1,910
Ratio of Adjusted EBITDA to net interest expense(g)......... 1.19x 1.74x
Ratio of Adjusted EBITDA to cash interest expense(g)........ 1.39 1.93
Pro forma ratio of earnings to fixed charges(h)(i).......... -- --
</TABLE>
Footnotes on following page.
34
<PAGE> 38
Footnotes from previous page.
- - ---------------
(a) The Company recorded a nonrecurring charge ($3.8 million) for expenses
associated with the 1996 Refinancing. See Note 4 of notes to financial
statements included elsewhere in this Prospectus and "Risk Factors --
History of Losses."
(b) Includes a $500,000 one-time nonrecurring compensation charge to management
of the Company upon consummation of the Old Note Offering. TFH will
contribute $500,000 to the Company to fund the payment of this compensation
charge. See "Management -- Incentive Compensation Plans -- Executive
Incentive Plan."
(c) The pro forma interest expense reflects: (i) the elimination of interest
expense on the TFH Debt ($7.8 million for the year ended December 28, 1996
and $3.6 million for the 24-week period ended June 14, 1997), the Congress
Debt ($300,000 for the year ended December 28, 1996 and $500,000 for the 24-
week period ended June 14, 1997), and the STI Debt ($400,000 for the year
ended December 28, 1996 and $300,000 for the 24-week period ended June 14,
1997); (ii) additional interest expense on the Notes and the Class A
Preferred Stock ($7.1 million for the year ended December 28, 1996 and $3.2
million for the 24-week period ended June 14, 1997); and (iii) the
amortization of debt issuance costs ($400,000 for the year ended December
28, 1996 and $200,000 for the 24-week period ended June 14, 1997).
(d) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of income (loss) before income taxes plus interest
expense, depreciation and amortization. EBITDA is a widely accepted measure
of a Company's ability to incur and service debt, to undertake capital
expenditures, and to meet working capital requirements. EBITDA is not a
measure of financial performance under generally accepted accounting
principles ("GAAP") and should not be considered an alternative either to
net income as an indicator of the Company's operating performance or as an
indicator of the Company's liquidity.
(e) "Adjusted EBITDA" is EBITDA excluding restructuring and nonrecurring charges
of $3.8 million for fiscal 1996 and on a pro forma basis, the $500,000
nonrecurring compensation charge for both pro forma periods presented.
(f) Pro Forma cash interest expense is historical cash interest expense adjusted
to include the interest on the Notes ($6.3 million for the year ended
December 28, 1996 and $2.9 million for the 24-week period ended June 14,
1997) and elimination of the cash paid for interest on the Congress Debt and
the STI Debt ($1.7 million for the year ended December 28, 1996 and $700,000
for the 24-week period ended June 14, 1997).
(g) Ratio of Adjusted EBITDA to net interest expense or cash interest expense
represents Adjusted EBITDA divided by net interest expense or cash interest
expense.
(h) For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consists of operating income (loss) before income taxes plus
fixed charges, and "fixed charges" consists of net interest expense and the
portion of rental expense deemed representative of the interest factor.
(i) Pro forma ratio of earnings to fixed charges is calculated using the ratio
of earnings to fixed charges, adjusted to give effect to the Old Note
Offering by decreasing interest expense ($1.0 million and approximately
$900,000 for the year ended December 28, 1996 and the 24-week period ended
June 14, 1997, respectively), increasing amortization of debt issuance costs
($400,000 and $200,000 for the year ended December 28, 1996 and the 24-week
period ended June 14, 1997, respectively) and including as a component of
fixed charges the pre-tax earnings that would be required to cover the Class
B Preferred Stock dividends ($4.4 million and $2.0 million for the year
ended December 28, 1996 and the 24-week period ended June 14, 1997). The
deficiency of pro forma earnings to fixed charges was $11.1 million and $2.2
million for the year ended December 28, 1996 and the 24-week period ended
June 14, 1997, respectively.
35
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained herein includes certain forward-looking
statements. The Company desires to take advantage of the "safe harbor" which is
afforded such statements under the Private Securities Litigation Reform Act of
1995 when they are accompanied by meaningful cautionary statements identifying
important factors that could cause results to differ materially from those in
the forward-looking statements. See "Risk Factors -- Forward-Looking
Statements."
GENERAL
Tom's Foods manufactures over 250 and sells over 300 ready-to-eat snack
food products. The Company's products include chips, cracker sandwiches, baked
goods, nuts and candy. The Company markets its products through a distributor
network utilizing a variety of distribution channels such as convenience stores,
supermarkets and vending machines.
In 1995, the Company hired a new senior management team, which developed
and implemented a new business strategy designed to increase profitability. Net
sales for the 24-week period ended June 14, 1997 increased 9.4% over the
comparable 1996 period, and sales for fiscal 1996 increased 3.8% over fiscal
1995. For the 24-week period ended June 14, 1997, EBITDA increased 31.2% to $6.7
million from $5.1 million for the comparable 1996 period. Adjusted EBITDA
increased 20.4% to $10.1 million after giving effect to a $3.8 million
restructuring charge for fiscal 1996 from an Adjusted EBITDA of $8.4 million
after giving effect to a restructuring charge of $9.6 million for fiscal 1995.
The Company records net sales as its products are delivered to its direct
customers which include independent distributors (wholesalers), National
Accounts, and Contract Sales customers. The Company refers to the wholesale
price level as Distributor Price List. The industry, however, generally
recognizes revenues as sales at the retail level because virtually all of the
Company's competitors operate company-owned distribution systems. Consequently,
the Company's sales and gross profits, by comparison, will appear lower for
comparable volume levels. However, the Company does not incur the additional
distribution costs or capital investment in assets which are incurred by
competitors with company-owned distribution. Such distribution costs are
reported as selling expense.
RESULTS OF OPERATIONS
24-Week Period Ended June 14, 1997 Compared to 24-Week Period Ended June
15, 1996
The following table sets forth certain historical income statement data for
the periods indicated derived from the Company's statements of operations
expressed in dollars and as a percentage of net sales.
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED
-----------------------------------------------
JUNE 15, 1996 JUNE 14, 1997
-------------------- --------------------
(UNAUDITED; DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales......................................... $ 91,811 100.0% $100,480 100.0%
Cost of goods sold................................ (59,398) (64.7) (62,908) (62.6)
-------- -------- -------- --------
Gross profit.................................... 32,413 35.3 37,572 37.4
Selling and administrative expenses............... (30,688) (33.4) (34,732) (34.6)
Amortization of goodwill and intangible assets.... (775) (0.9) (774) (0.8)
Other income (expense)............................ 238 0.3 513 0.5
Restructuring and non-recurring charges........... 0 0.0 0 0.0
-------- -------- -------- --------
Income (loss) from operations................... 1,188 1.3 2,579 2.5
Interest expense, net............................. (3,687) (4.0) (4,768) (4.7)
-------- -------- -------- --------
Loss before income taxes........................ (2,499) (2.7) (2,189) (2.2)
Provision (benefit) for income taxes.............. 228 0.2 231 0.2
-------- -------- -------- --------
Net loss........................................ $ (2,727) (3.0)% $ (2,420) (2.4)%
======== ======== ======== ========
Adjusted EBITDA................................... $ 5,073 5.5% $ 6,656 6.6%
Depreciation and amortization..................... 3,885 4.2 4,077 4.1
</TABLE>
36
<PAGE> 40
Net Sales
Net sales for the 24-week period ended June 14, 1997 were $100.5 million,
an increase of $8.7 million or 9.4%, compared to $91.8 million reported for the
1996 comparable period. The new marketing team assembled in late 1995 continued
to develop successful new products, packaging, and marketing and merchandising
programs, which combined with improved execution by the field sales force,
contributed to the sales increase. Sales to independent distributors and through
Company-owned routes increased $1.4 million, or 2.3%, to $61.8 million for the
24-week period ended June 24, 1997 from $60.4 million for the 1996 comparable
period in spite of the failure of a number of independent single route
distributors. The Company has taken over and either sold, closed or begun to
rebuild these routes by incorporating them into its network of approximately 217
Company-owned and operated routes. Sales to National Accounts increased $2.5
million, or 10.8% to $25.8 million for the 24-week period ended June 14, 1997
from $23.3 million in for the comparable 1996 fiscal period as the Company's new
product, marketing and merchandising programs are being well received by
distributors and retail accounts. Contract Sales, while a smaller piece of
overall sales volume, were $12.1 million for the 24-week period ended June 14,
1997, an increase of $5.4 million compared to $6.7 million in sales for the 1996
comparable period. The increase in Contract Sales reflects the Company's
strategy to increase volume through non-branded as well as branded products to
allow for more efficient plant operation and increased fixed cost coverage.
Management believes that Contract Sales sales volume of 12.1% for the 24-week
period ended June 14, 1997 is in an acceptable range to support fixed overhead
absorption without danger of over-reliance on non-branded volume.
Gross Profit
Higher net sales contributed to an increase in gross profit to $37.6
million, or 37.4% of net sales, for the 24-week period ended June 14, 1997 from
$32.4 million, or 35.3% of net sales, for the comparable 1996 period.
Contributing to the improved gross profit was a reduction in package weights
(while maintaining prices), lower raw material and packaging costs, and
increased sales of higher margin products. Also contributing to improved gross
profit were the beneficial results of manufacturing process changes that have
resulted in better control of product packaging weight. Lastly, the higher level
of sales has resulted in production efficiencies through better scheduling and
higher absorption of overhead costs.
Selling and Administrative Expenses
Selling and administrative expenses increased $4.0 million, or 13.2%, for
the 24-week period ended June 14, 1997 compared to the comparable 1996 period.
This increase is due to: (i) higher promotion expenses consistent with the
higher sales volume, however as a percent of net sales, promotional expenses
decreased from 5.0% to 4.9%; (ii) higher selling and administrative expenses,
primarily relating to increased incentive-based compensation and an enlarged
marketing staff; (iii) lower Affiliated Supplier commission income as the
Company de-emphasized this business segment; and (iv) increased route operating
expenses as the average number of Company-owned and operated routes increased to
approximately 217 routes from approximately 112 routes for the respective
periods. This increase in the number of owned and operated routes is consistent
with the Company's strategy to redevelop market areas not adequately serviced by
the Company's current independent distributors. As noted earlier, the cost of
operating Company-owned routes is recorded as a selling expense.
Amortization of Goodwill and Intangible Assets
Goodwill and intangible assets arose during the acquisition of the Company
in May 1993. The Company has attributed the goodwill and intangible assets to
its distribution system, an assembled staff, various trademarks and goodwill.
These items are being amortized using the straight-line method over their
estimated composite life of 35 years. The amortized expense for each of the
24-week periods ended June 14, 1997 and June 15, 1996 was $800,000.
37
<PAGE> 41
Other Income (Expense)
Other income (expense) increased $300,000 for the 24-week period ended June
14, 1997 over the comparable period in 1996 due to a decrease in expenses
associated with the vending machine rental program.
Adjusted EBITDA
EBITDA for the 24-week period ended June 14, 1997 was $6.7 million, or 6.6%
of net sales, an increase of 31.2% from $5.1 million, or 5.5% of net sales, for
the comparable period in 1996. There were no restructuring charges in either
period, consequently, no adjustment was necessary for comparative purposes.
Interest Expense
Interest expense, net of interest income, increased to $4.8 million for the
24-week period ended June 14, 1997 from the $3.7 million for the comparable 1996
period as a result of higher outstanding loan balances and an increase in
interest rates on certain debt obligations refinanced in August 1996. See
"Certain Transactions" and "Description of Other Senior Indebtedness." Average
outstanding borrowings for the 24-week period ended June 14, 1997 were $93.2
million, with an average effective interest rate of 11.1%, an increase of $16.3
million and 0.7 percentage points, compared to $76.9 million in average
outstanding borrowings and an average effective interest rate of 10.4% for the
comparable 1996 period.
Provision for Federal and State Income Taxes
As of June 14, 1997 and June 15, 1996, the Company estimated that it would
have no Federal tax obligation due to loss carryforwards from prior years,
however, the Company did provide for certain state income and franchise tax
obligations in both years. The Company has a net operating loss carryforward of
approximately $45.0 million which begins to expire in fiscal 2009.
Net Loss
As a result of the above, the Company recorded a net loss for the 24-week
period ended June 14, 1997 of $2.4 million, compared to a net loss of $2.7
million for the comparable 1996 period.
Fiscal Year Ended December 28, 1996 Compared to Fiscal Year Ended December 30,
1995
The following table sets forth for the periods indicated certain historical
income statement data derived from the Company's statements of operations
expressed in dollars and as percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
DECEMBER 30, 1995 DECEMBER 28, 1996
---------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................... $ 198,340 100.0% $ 205,856 100.0%
Cost of goods sold.......................... (125,396) (63.2) (133,624) (64.9)
--------- --------- --------- ---------
Gross profit........................... 72,944 36.8 72,232 35.1
Selling and administrative expenses......... (75,783) (38.2) (69,735) (33.9)
Amortization of goodwill and intangible
assets.................................... (1,678) (0.9) (1,678) (0.8)
Other income (expense)...................... 3,296 1.7 1,309 0.6
Restructuring and nonrecurring charges...... (9,570) (4.8) (3,793) (1.8)
--------- --------- --------- ---------
Income (loss) from operations.......... (10,791) (5.4) (1,665) (0.8)
Interest expense, net....................... (7,870) (4.0) (9,402) (4.6)
--------- --------- --------- ---------
Loss before income taxes............... (18,661) (9.4) (11,067) (5.4)
Provision (benefit) for income taxes........ (400) (0.2) 0 0.0
--------- --------- --------- ---------
Net loss............................... $ (18,261) (9.2)% $ (11,067) (25.4)%
========= ========= ========= =========
Adjusted EBITDA............................. $ 8,374 4.2% $ 10,084 4.9%
Depreciation and amortization............... 9,595 4.8 7,956 3.9
</TABLE>
38
<PAGE> 42
Net Sales
Net sales increased 3.8%, or $7.6 million, to $205.9 million in fiscal 1996
from $198.3 million in fiscal 1995. This sales increase is net of the impact of
an approximate $1.2 million annualized price decrease implemented at the
beginning of fiscal 1996 mainly for Single-Serve Size products and the
elimination or loss of approximately $13.3 million in net sales, primarily from
discontinued business with certain unprofitable National Accounts and, to a
lesser degree, due to normal competitive activity. Sales to independent
distributors and through Company-owned and operated routes decreased $2.0
million or 1.5% to $128.9 million for fiscal 1996 compared to $130.9 million for
fiscal 1995. Contract Sales increased $9.8 million in fiscal 1996 to $21.2
million from $11.4 million in fiscal 1995 as the Company made a strategic
decision to pursue increased contract manufacturing volume to improve the
operating efficiency of its manufacturing facilities through volume driven fixed
overhead cost absorption and production scheduling. Contract Sales represented
10.3% of total fiscal 1996 volume which management feels is in an acceptable
range to achieve its strategic objectives without over emphasizing contract
manufacturing. National Account net sales decreased $600,000, or 1.0%, to $52.8
million in fiscal 1996 from $53.4 million in fiscal 1995 as a direct result of
initiatives already discussed. During 1996, the Company decided to discontinue
the sale of certain less profitable Affiliated Products. Consequently,
Affiliated Product net sales declined $1.7 million to $7.7 million in fiscal
1996 from $9.4 million in fiscal 1995.
Gross Profit
Gross profit for fiscal 1996 decreased slightly to $72.2 million, or 35.1%
of net sales, from $72.9 million, or 36.8% of net sales, for fiscal 1995. As
mentioned above, net sales and gross profit were both impacted by an annualized
$1.2 million in price reductions on selected products applied at the beginning
of 1996. Additionally, the increase in Contract Sales, which carry lower gross
margins than do sales of the Company's branded products, also reduced gross
profits. Contract Sales require minimal support costs, consequently, the
earnings impact of Contract Sales on income from operations is similar to that
of the Company's branded products.
Selling and Administrative Expenses
Selling and administrative expenses decreased by more than $6.0 million, or
8.0%, to $69.7 million in fiscal 1996 from $75.8 million in fiscal 1995. This
decrease was largely due to the reorganization of the sales and management
functions in 1995 and aggressive cost reduction programs in both 1996 and 1995.
The consolidation in sales regions from seven to three in fiscal 1995
contributed to substantial cost savings in 1996. Marketing expense was reduced
by $1.7 million, or 14.1%, in fiscal 1996 largely to eliminate unprofitable and
inefficient promotional spending. Costs associated with the Company's disposal
of obsolete and discontinued packaging materials was reduced by 90% in fiscal
1996 compared to the prior two fiscal years as the marketing and manufacturing
departments better coordinated the transition to new products and new packaging
designs. Distribution expense was reduced from 6.9% of net sales in fiscal 1995
to 6.6% of fiscal 1996 net sales. Administrative costs, primarily related to
salaries, were reduced by $800,000 in fiscal 1996 versus fiscal 1995.
Amortization of Goodwill and Intangible Assets
Goodwill and intangible assets arose during the acquisition of the Company
in May 1993. The Company has attributed the goodwill and intangible assets to a
distribution system, an assembled staff, various trademarks and goodwill. These
items are being amortized using the straight-line method over their estimated
composite life of 35 years. The amortized expense for both fiscal 1996 and 1995
was $1.7 million.
Other Income (Expense)
Other income (expense) decreased $2.0 million from $3.3 million in fiscal
1995 to $1.3 million in fiscal 1996. This decrease was primarily due to the drop
in franchise fees and related vending machine rental income that occurred with
the curtailment of the Company's single-route franchising program at the end of
1995.
39
<PAGE> 43
Restructuring and Nonrecurring Charges
In fiscal 1996, the Company recorded $3.8 million in nonrecurring
transaction costs directly associated with the refinancing of certain of its
long-term debt obligations and the securing of a senior loan facility which
included a working capital line of credit. In fiscal 1995, the Company recorded
$9.7 million in restructuring and nonrecurring charges associated with the
implementation of the Company's new business strategy. The 1995 restructuring
charge included a $9.6 million reversal of the remaining restructuring reserve
created in connection with the Company's decision in 1991 to convert certain
multi-route distributors to single-route distributors. Management estimated that
the Company would incur expenses of approximately $6.5 million to restructure
the distribution system and recorded a new restructuring reserve in that amount.
In addition to the $6.5 million restructuring reserve charge, the Company
recorded nonrecurring charges of approximately $12.8 million associated with
severance and other benefit costs related to changes in the administrative and
sales functions and the write-off of certain assets.
Adjusted EBITDA
Reported EBITDA for fiscal 1996 was $6.3 million including a nonrecurring
charge of $3.8 million for refinancing transaction costs which, if added back,
produces an Adjusted EBITDA (exclusive of the nonrecurring charge) of $10.1
million. Similarly, a nonrecurring restructuring charge of $9.6 million was
incurred in fiscal 1995 for the costs of the Company's reorganization efforts
which, if added back to the fiscal 1995 EBITDA loss of $1.2 million, produces an
Adjusted EBITDA of $8.4 million. Comparing the two years, fiscal 1996 Adjusted
EBITDA of $10.1 million increased 20.4% over fiscal 1995 Adjusted EBITDA of $8.4
million.
Interest Expense
Interest expense, net of interest income, increased to $9.4 million for
fiscal 1996 from $7.9 million for fiscal 1995 as a result of higher outstanding
loan balances and an increase in interest rates relative to certain debt
obligations refinanced in August 1996. Average outstanding borrowings for fiscal
1996 were $80.7 million, with an average effective interest rate of 11.7%, an
increase of $8.2 million and 0.8 percentage points, compared to $72.5 million of
average outstanding borrowings and an average effective interest rate of 10.9%
for fiscal 1995. See "Certain Transactions" and "Description of Other Senior
Indebtedness."
Provision for Federal and State Income Taxes
Due to net operating loss carryforwards from prior years, the Company
estimated that it would have no income tax liability for fiscal 1996. The
Company recorded an income tax benefit of $400,000 in fiscal 1995.
Net Loss
As a result of the above, the Company recorded net loss of $11.1 million
(including $3.8 million in nonrecurring refinancing costs) for fiscal 1996 as
compared to a net loss of $18.3 million (including $9.6 million in nonrecurring
restructuring costs) reported in fiscal 1995.
40
<PAGE> 44
Fiscal Year Ended December 30, 1995 Compared to Fiscal Year Ended December 31,
1994
The following table sets forth for the periods indicated certain historical
income statement data derived from the Company's statements of operations
expressed in dollars and as percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------
DECEMBER 30, 1994 DECEMBER 28, 1995
--------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................... $ 215,650 100.0% $ 198,340 100.0%
Cost of goods sold........................... (130,774) (60.6) (125,396) (63.2)
--------- --------- --------- ---------
Gross profit............................ 84,876 39.4 72,944 36.8
Selling and administrative expenses.......... (78,937) (36.6) (75,783) (38.2)
Amortization of goodwill and intangible
assets..................................... (1,678) (0.8) (1,678) (0.9)
Other income (expense)....................... 1,890 0.9 3,296 1.7
Restructuring and nonrecurring charges....... 0 0.0 (9,570) (4.8)%
--------- --------- --------- ---------
Income (loss) from operations........... 6,151 2.9 (10,791) (5.4)
Interest expense, net........................ (6,405) (3.0) (7,870) (4.0)
--------- --------- --------- ---------
Loss before income taxes................ (254) (0.1) (18,661) (9.4)
Provision (benefit) for income taxes......... 500 0.2 (400) (0.2)
--------- --------- --------- ---------
Net loss................................ $ (754) (0.3)% $ (18,261) (9.2)%
========= ========= ========= =========
Adjusted EBITDA.............................. $ 15,588 7.2% $ 8,374 4.2%
Depreciation and amortization................ 9,437 4.4 9,595 4.8
</TABLE>
General
Programs put into place in fiscal 1994 and prior continued to negatively
impact sales and earnings through fiscal 1995. New management, installed in
1995, developed and began the implementation of a new business strategy which
halted this decline and began to increase sales and overall profitability as
noted in the discussions of fiscal 1996 and for the 24-week period ended June
14, 1997.
Net Sales
Net sales for fiscal 1995 decreased $17.3 million, or 8.0%, to $198.3
million from $215.7 million in fiscal 1994. Much of this decrease can be
attributed to unprofitable accounts and geographic areas as well as the
discontinuance of several failed business initiatives. Conversely, fiscal 1994
sales were boosted by strong promotional activities such as the "2 for $1.00"
nuts and the "2 free" cracker programs. While these and similar programs
contributed to increased sales volumes for fiscal 1994, they were not
necessarily profitable programs. Sales to distributors and through Company-owned
routes decreased $5.1 million, or 2.4%, for the reasons just noted. Similarly,
sales to National Account decreased $4.1 million, or 1.9%, as promotional
programs with certain less profitable accounts failed to meet newly instituted
standards and thus were discontinued. Contract Sales decreased $4.2 million, or
1.9%, as two customers curtailed business, one to shift volume to another
manufacturer and the other due to the discontinuance of its product line. The
Company had $3.2 million in net sales during fiscal 1994 under a second brand
name. These sales were generally unprofitable and the second brand was sold in
the later half of fiscal 1994.
Gross Profit
Gross profit for fiscal 1995 decreased 14.1% to $72.9 million, or 36.8% of
net sales, from $84.9 million, or 39.4% of net sales, in fiscal 1994. The gross
profit decrease was driven by the decrease in sales volume which reduced fixed
cost absorption, a shift in product mix to lower margin products and shifts in
distribution channel mix which saw a decline in National Account business. Gross
profit was also negatively impacted by increased direct manufacturing costs for
materials, packaging and labor.
41
<PAGE> 45
Selling and Administrative Expenses
Selling and administrative expenses decreased $3.1 million, or 4.0%, to
$75.8 million in fiscal 1995 from $78.9 million in fiscal 1994. The most
significant reduction in fiscal 1995 over fiscal 1994 occurred in variable
selling and promotional expenses due to lower volume and the curtailment of
unprofitable programs. Also contributing to the decrease were six months of
financial benefit from the Company's reorganization and cost reduction efforts
initiated in fiscal 1995.
Amortization of Goodwill and Intangible Assets
Goodwill and intangible assets arose during the acquisition of the Company
in May 1993. The Company has attributed the goodwill and intangible assets to a
distribution system, an assembled staff, various trademarks and goodwill. These
items are being amortized using the straight-line method over their estimated
composite life of 35 years. The amortized expense for each of the fiscal years
1994 and 1995 was $1.7 million.
Other Income (Expense)
Other income (expense) increased $1.4 million from $1.9 million in fiscal
1994 to $3.3 in fiscal 1995. This increase was primarily due to an increase in
franchise fee and related vending machine rental income that occurred with the
initiation of the Company's single-route franchising program at the beginning of
1995.
Nonrecurring Expenses
In connection with the implementation of the new business strategy, the
Company recorded nonrecurring charges of $9.6 million in fiscal 1995 as
previously discussed.
Adjusted EBITDA
Reported EBITDA for fiscal 1995 was a loss of $1.2 million including a
nonrecurring restructuring charge of $9.6 million which, if added back, produces
an Adjusted EBITDA (exclusive of the nonrecurring restructuring charge) of $8.4
million. There were no such charges in fiscal 1994. Comparing the two years,
fiscal 1995 Adjusted EBITDA of $8.4 million decreased 46.3% from fiscal 1994
EBITDA of $15.6 million.
Interest Expense
Interest expense, net of interest income, increased $1.5 million, or 22.9%,
to $7.9 million in fiscal 1995 from $6.4 million in fiscal 1994. The higher
interest expense was the result of an increase in revolving line of credit
borrowings in 1995 and, more significantly, several increases in the prime
lending rate. Average outstanding borrowings for fiscal 1995 were $72.5 million,
with an average effective interest rate of 10.9%, an increase of $1.2 million
and 1.9 percentage points, compared to $71.3 million of average outstanding
borrowings and an average effective interest rate of 9.0% for fiscal 1994.
Provision for Federal and State Income Taxes
The Company recorded an income tax benefit of $400,000 in fiscal 1995. In
fiscal 1994, the Company recorded a tax obligation of $500,000 primarily to
recognize state income and franchise tax liabilities.
Net Loss
As a result of the above, the Company's net loss of $18.3 million for
fiscal 1995 increased from the net loss of $800,000 reported for fiscal 1994.
Liquidity and Capital Resources
The Company's cash flow requirements are for working capital, capital
expenditures and debt service. The Company has met its liquidity needs to date
through internally generated funds and a revolving line of credit established in
August 1996 with Congress. As of June 14, 1997, the Company had no outstanding
loans
42
<PAGE> 46
under the revolving line and had $8.4 million in borrowing availability
thereunder. Certain of the Company's long-term obligations will be repaid with
the proceeds of the Offering. See "Use of Proceeds", "Description of Other
Senior Indebtedness" and "Certain Transactions."
In connection with the 1996 Refinancing, the Company substantially
refinanced its long-term debt obligations. In this transaction, the Company
entered into the $29.0 million senior Congress Loan Facility, which includes a
$9.0 million term loan facility, a $3.0 million equipment line of credit (loans
made under the term loan facility and the equipment line of credit are
collectively referred to herein as the "Congress Debt"), and a $17.0 million
revolving line of credit (loans made under the revolving line of credit are
collectively referred to herein as the "Congress Revolving Loans"). Interest
accrues on the Congress Debt and the Congress Revolving Loans at 1.625% and
1.375%, respectively, over the prime rate of interest (10.125% and 9.875%,
respectively, as of June 14, 1997). The Company borrowed $9.0 million of
Congress Debt and used other available cash to make a $10.0 million payment on
the CIBC Debt. The repayment reduced the outstanding balance under the CIBC Debt
from $62.3 million to $52.3 million. See "Certain Transactions."
In connection with the 1996 Refinancing, TFH was formed by certain of the
Company's investors to, among other things, acquire and refinance certain of the
Company's long term debt obligations, including; (i) the $52.3 million
outstanding of CIBC Debt; and (ii) the $8.8 million outstanding of MassGeneral
Debt, which included $1.3 million in accrued interest thereon which was
subsequently paid to TFH. The terms of the TFH Debt were modified to subordinate
this debt to Congress, defer payments of principal and interest owing thereon
and increase the interest rate to 13.0% per annum. In addition, the TFH
Stockholders provided the TFH Stockholders' Letters of Credit in the aggregate
original face amount of $10.0 million to replace the Company's Letter of Credit.
In exchange for these actions, TFH received 80.0% of the Company's outstanding
Common Stock. See "Certain Transactions."
In addition to the refinancing of the above noted obligations, as part of
the 1996 Refinancing, the Company reached an agreement with STI to limit
payments of interest and principal on the STI Debt to $600,000 annually through
August 1999. At the end of such period, any outstanding guarantee obligation of
the Company is to be amortized over 50 months plus interest. Interest accrues on
such indebtedness at the higher of 1.5% over the prime rate or 2.0% over LIBOR.
The proceeds of the Old Note Offering allowed the Company to retire the
Congress Debt and a portion of the TFH Debt and fully satisfy the STI Debt. The
balance of the TFH Debt was exchanged for Preferred Stock. The retirement of
these obligations substantially reduced the Company's interest expense and
lengthened the maturities of its debt obligations. See "Use of Proceeds."
The Company's working capital improved to $11.9 million as of June 14, 1997
from $100,000 in the same period in 1996. Additionally, as a result of the 1996
Refinancing and the overall improvement in the Company's operations, the
Company's working capital improved to $7.4 million at December 28, 1996 from
$4.6 million at December 30, 1995 (after reclassification for fiscal 1995 of a
revolving loan of $8.0 million and the current portion of long-term debt of $8.1
million both due as part of the CIBC Debt, both of which were refinanced as
long-term debt in August 1996).
Net cash provided by operating activities was $1.6 million for the 24 week
period ended June 14, 1997 as compared to $3.7 million for the 24-week period
ended June 15, 1996. This was primarily due to a decrease in accounts payable
which is consistent with the Company's strategy of using faster supplier
payments in exchange for pricing and supply concessions. Net cash provided
(used) by operating activities was $8.8 million and ($4.8) million for fiscal
1996 and 1995, respectively. The improvement in 1996 operating cash flow was
driven by lower inventory of $300,000, a reduction in other assets of $2.7
million, an increase in accounts payable of $4.7 million, and an increase in
other liabilities of $5.0 million. The reduction in other assets which included
assets such as route trucks and hand held computers previously held for resale
was driven by the reclassification of these assets as long-term. The $5.0
million increase in other liabilities was primarily a result of accrued interest
due TFH. These improvements were partially offset by an increase in accounts
receivable of $4.5 million which is attributed to an increase in Contract Sales
and National Accounts business, which have longer payment terms than does
distributor business.
43
<PAGE> 47
Capital expenditures for the 24-week period ended June 14, 1997 were $1.9
million compared to $1.7 million in the comparable 1996 period. Capital
expenditures were $5.8 million and $7.3 million in fiscal 1996 and 1995,
respectively.
In fiscal 1996, the Company spent approximately $1.0 million to purchase
and install a pretzel manufacturing line which allowed the Company to bring
production of its branded pretzel products in-house. The remaining expenditures
for the 24-week period ended June 14, 1997 and for fiscal 1996 and 1995 were
primarily to fund the Company's capital expenditure program for its
manufacturing facilities and its acquisition of underperforming distributors.
For the 24-week period ended June 14, 1997 and for fiscal 1996 and 1995,
respectively, the Company spent $1.4 million, $3.7 million (including the
pretzel line) and $3.8 million on its manufacturing facilities and $500,000,
$2.1 million, and $3.5 million on distributor acquisitions. The Company also
utilizes operating leases for capital equipment, primarily for over the road
trucks and trailers, route delivery trucks used on Company-owned routes and
passenger vehicles. All operating leases are treated as operating expenses and
their cash flow impact is reflected in cash flows from operating activities.
Net cash provided (used) by financing activities was $0.0, ($3.0) million
and $7.1 million for the 24-week period ended June 14, 1997 and in fiscal 1996
and 1995, respectively. For the 24-week period ended June 14, 1997, the Company
borrowed $800,000 under its equipment line with Congress to fund the purchase of
a pretzel manufacturing line. During the same period, the Company made payments
of $800,000 on the Congress Debt. In fiscal 1996, as part of the 1996
Refinancing, the Company borrowed $9.0 million in Congress Debt to fund
repayment of a portion of the CIBC Debt and also expended $2.1 million to fund
transaction costs relating to the refinancing. In fiscal 1995, the Company
borrowed $8.9 million of which $8.0 million came from its CIBC Debt, made loan
repayments of $4.2 million, and sold $2.4 million in recourse receivables to STI
under a program that was subsequently discontinued. The Company did not pay
dividends for the 24-week period ended June 14, 1997 nor for fiscal years 1996,
1995, or 1994.
The Company believes that internally generated funds, financing
arrangements with Golden Peanut and amounts which will be available to it under
its new Working Capital Facility are and will continue to be sufficient to
satisfy its operating cash requirements and planned capital expenditures.
CAUTIONARY STATEMENTS RELATED TO FORWARD-LOOKING STATEMENTS
The Company makes forward-looking statements from time to time and desires
to take advantage of the "safe harbor" which is afforded such statements under
the Private Securities Litigation Reform Act of 1995 when they are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those in the forward-looking
statements.
The statements contained in the foregoing "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Prospectus which are not historical facts are forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from those set forth in the forward-looking statements. There can be
no assurance that any forward-looking statement will be realized or that actual
results will not be significantly higher or lower than set forth in such
forward-looking statement.
44
<PAGE> 48
BUSINESS
Tom's Foods is a leading regional snack food manufacturing company with a
primary market focus in the southeastern and southwestern United States, regions
in which the Company believes the population and snack food consumption are
growing more rapidly than in the United States overall. The Company has
manufactured and sold snack food products since 1925 and currently manufactures
over 250 and sells over 300 ready-to-eat snack food products, primarily under
the widely recognized "Tom's" brand name. Management believes that the Company
has one of the most diversified distribution networks in the snack food
industry. The Company's distribution network serves a variety of customers,
including independent retailers, vending machines, retail supermarket chains,
convenience stores, mass merchandisers, food service companies and military
bases. Management believes that the Company's competitive advantages include the
strength of its distribution network, which services independent retailers in
various markets, and its vending machine network, which is one of the largest
single-label, snack food vending machine networks in the United States. The
Company's products are distributed in 43 states by 915 independent distributors,
which operate approximately 2,131 sales routes, and Company employees, who
operate approximately 217 routes.
BUSINESS STRATEGY
In 1995, the Company hired a new senior management team, which developed
and implemented a new business strategy designed to increase profitability. The
components of the business strategy include: (i) developing and expanding
markets; (ii) strengthening the Company's distribution network; (iii) increasing
introductions of new and updated products; (iv) expanding distribution channels
and outlets; and (v) increasing operating efficiencies. In part as a result of
this new business strategy, for the 52 weeks ended June 14, 1997, Adjusted
EBITDA increased 48.8% over the same period in the previous year.
The key elements of the Company's business strategy are as follows:
Developing and Expanding Markets. The Company traditionally has had a
strong presence in the southeastern and southwestern United States, areas in
which the Company believes the population and snack food consumption are growing
more rapidly than the United States overall. In order to capitalize on the
growth in those markets, the Company intends to continue to strengthen its
presence in the southeastern and southwestern United States. The Company also
intends to strengthen its presence in metropolitan markets where the Company
believes it can (i) achieve higher overall gross profits through higher product
volume and local economies of scale on products and (ii) increase its access to
National Accounts. The Company intends to strengthen its core markets and
develop additional markets through implementation of the other elements of its
business plan.
Strengthening the Company's Distribution Network. The Company has
undertaken a number of initiatives to strengthen and upgrade its distribution
network and continue to improve its relationship with its independent
distributors. First, the Company has developed a set of objective criteria by
which it evaluates the performance of its independent distributors and has held
its distributors accountable to such criteria since late 1995. Second, through
training programs, field sales support and marketing and merchandising
activities, the Company will continue to assist distributors in the development
of more efficient multi-route operations. Third, the Company will reassign
underperforming and/or underdeveloped distributor territories to more capable
independent distributors or incorporate them into the Company-owned route
network. Fourth, the Company will continue to develop the Company-owned and
independently-owned multi-route strategy in metropolitan markets, which
management believes will allow the Company to increase market share and improve
margins in these markets. Finally, by broadening the services available to
distributors, such as its new centralized customer service center, increased
training programs, and improved technical support, the Company will continue to
enhance its frequent interactions with its distributors.
Increasing Introductions of New and Updated Products. The Company intends
to continue to develop and introduce new products and update existing products
and packaging, an effort which the new senior management team initiated in late
1995. The Company believes that the introduction of new and updated products is
necessary to meet changing consumer preferences and to attract new customers. As
part of this
45
<PAGE> 49
effort, the Company has and will continue to introduce new flavors, redesign its
packaging and modify packaging sizes and weights, all of which are intended to
update and unify the brand image.
Since 1995, the Company has introduced 61 new and 35 updated products, a
significant majority of which have been packaged and sold in Single-Serve Sizes.
Approximately 33.0% of the Company's manufactured products are new or have been
updated since 1995, and the Company plans to complete updating all of its
products by the end of 1998. For the 24-week period ended June 14, 1997, these
new or updated products represented 30.0% of total sales to distributors. In
addition, 51 of the 61 new product introductions have been successfully
integrated into the Company's product lines, a rate which management believes
exceeds the industry average.
For the 24-week period ended June 14, 1997, the Company's comprehensive
product updating process has contributed to a net sales increase of 19.0% for
those SKU's which have been updated. For the same period, the aggregate gross
margin on new and updated products was approximately 1.0 percentage point higher
than the existing product category gross margin. Net sales from new, updated or
repositioned products have increased from less than 2.0% of fiscal 1995 net
sales to 4.0% of fiscal 1996 net sales, and 9.0% of net sales for the 24-week
period ended June 14, 1997. The Company's objective is to derive approximately
13.0% of its annual net sales from new, updated and repositioned products.
Expanding Distribution Channels and Outlets. The Company intends to
increase its presence in a number of distribution channels. The vending machine
channel continues to grow rapidly and the Company's newly-hired team of
experienced vending senior managers has and will continue to increase the
Company's penetration of this area. The Company intends to place particular
focus on developing metropolitan vending routes with an emphasis on full-line
vending accounts. Full-line vending accounts require the provision of other food
items, in addition to the snack food products manufactured by the Company, such
as coffee, cold beverages, cold foods and microwaveable products. In order to
address the additional requirements of full-line vending, the Company intends to
extend existing and develop new business arrangements with manufacturers of
these products.
The Company believes it can increase gross profit without expanding or
overextending its existing distributor network. The Company intends to achieve
this in part through introduction of a limited product line under a brand name
other than "Tom's" to provide the Company with access to national wholesale
distribution companies and retail trade accounts. This second brand will neither
require nor conflict with the merchandising services of the Company's
distributor network. The Company also intends to continue the expansion of its
successful Contract Sales program, which permits the Company to make efficient
use of its excess manufacturing capacity.
Increasing Operating Efficiencies. The Company intends to continue its
initiatives to reduce the Company's expenses and, consequently, to improve its
operating margins. For example, the Company has reduced its general and
administrative expenses from 5.7% of net sales for fiscal 1995 to 5.1% of net
sales for fiscal 1996. Similarly, distribution costs as a percent of net sales
have been reduced from 7.5% for fiscal 1995 to 6.9% for fiscal 1996. Over the
same period of time, marketing and merchandising expenses have remained
unchanged as a percent of net sales while total distributor sales and sales to
National Accounts have increased. The Company attributes this to the development
of more efficient marketing and merchandising programs and intends to continue
such programs.
Many of the Company's financial objectives have been achieved in part due
to a new philosophy of providing financial incentives to line managers, whose
compensation is now directly related to the financial performance of their areas
of responsibility. The Company also has begun to develop and implement more
sophisticated information systems to assist managers in achieving their
objectives. Additionally, the Company has established a sophisticated risk
management program which monitors the cost of raw material, packaging, energy
and other commodities, enabling the Company to lower its costs and minimize the
impact of market price fluctuations on the Company's major expense categories.
46
<PAGE> 50
PRODUCTS AND PACKAGING
The Company sells a wide variety of products in five principal categories:
chips, sandwich crackers, baked goods, nuts and candy. The Company sells its
products under the "Tom's" brand name and also manufactures products for
delivery directly to National Accounts and for other manufacturers on a Contract
Sales basis. In addition, the Company derives revenue from sales of Affiliated
Products.
To meet the requirements of its diversified distribution channels, the
Company's products (excluding those packaged for Contract Sales) are packaged
primarily in two sizes: Single Serve Sizes and Multi-Serve Sizes. The Company's
Single-Serve Sizes address distribution channels, such as vending machines,
small or independent retail stores and national convenience store chains, which
are niche channels that the Company's distribution network is well situated to
serve effectively. The Company's Multi-Serve Sizes are positioned as a regional
alternative to national brands and typically are distributed through
supermarkets and similar large retail outlets.
In addition to Single-Serve Sizes and Multi-Serve Sizes, the Company
manufactures products for others on a Contract Sales basis. For example, the
Company currently produces sandwich crackers under contract for the Keebler
Corporation ("Keebler") and Bugles, a corn-based snack food product, for General
Mills Inc. In fiscal 1996, 10.5% of the Company's net sales were attributed to
Contract Sales. The table below sets forth the net sales and percentage of the
Company's net sales in fiscal 1996 by product category and packaging size or
contract packaging arrangement.
TOM'S FOODS FISCAL 1996 NET SALES BY CATEGORY AND PACKAGE SIZE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUSTOM SIZES TOTAL
SINGLE-SERVE MULTI-SERVE (CONTRACT ----------------------------
CATEGORY SIZES SIZES SALES) $ %
-------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Chips............................ $ 39,091 $ 65,697 $ 1,106 $ 105,894 51.4%
Sandwich Crackers................ 10,506 6,529 12,144 29,179 14.2
Baked Goods...................... 18,430 206 7,415 26,051 12.7
Nuts............................. 18,460 400 509 19,369 9.4
Candy............................ 12,847 1,686 402 14,935 7.3
Affiliated Products.............. 10,428 -- -- 10,428 5.0
------------ ------------ ------------ ------------ ------------
Total..................... $ 109,762 $ 74,518 $ 21,576 $ 205,856 100.0%
============ ============ ============ ============ ============
</TABLE>
Chips. The chip category, which accounted for 51.4% of the Company's net
sales in fiscal 1996, consists of various flavors of potato chips, such as sour
cream n' onion, honey mustard and Texas barbecue, corn-based snacks, such as
tortilla chips in nacho, pizza and taco flavors, plain and barbecue corn chips,
pretzels, popcorn, pork skins and extruded snacks, such as cheese puffs. In
fiscal 1996, 62.0% of the Company's net sales in the chip category were
attributed to products packaged in Multi-Serve Sizes, 36.9% were attributed to
products packaged in Single-Serve Sizes and 1.1% were attributed to Contract
Sales.
Sandwich Crackers. The sandwich cracker category, which accounted for
14.2% of the Company's net sales in fiscal 1996, consists of peanut butter or
cheese-filled crackers and cream-filled cookies. The Company manufactures both
the crackers and the filling used in the sandwiches. In fiscal 1996, 41.6% of
the sandwich crackers sold by the Company were attributed to Contract Sales. In
this product category, products packaged in Single-Serve Sizes and Multi-Serve
Sizes represented 36.0% and 22.4% of net sales, respectively.
Baked Goods. The baked goods category, which accounted for 12.7% of the
Company's net sales in fiscal 1996, consists of various flavors of cookies,
snack crackers, fig and apple bars and a line of cakes and pastries. In fiscal
1996, 70.7% of the Company's net sales in the baked goods category were
attributed to products packaged in Single-Serve Sizes, 28.5% were attributed to
Contract Sales and 0.8% were attributed to products packaged in Multi-Serve
Sizes.
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<PAGE> 51
Nuts. The nut category, which accounted for 9.4% of the Company's net
sales in fiscal 1996, consists of toasted and flavored peanuts, cashews,
pistachios and sunflower seeds. In fiscal 1996, 95.3% of the Company's net sales
in this category were attributed to products packaged in Single-Serve Sizes. The
remaining 2.1% and 2.6% of net sales were attributable to products packaged in
Multi-Serve Sizes and Contract Sales, respectively.
Candy. The candy category, which accounted for 7.3% of the Company's net
sales in fiscal 1996, consists of candy bars, such as peanut rolls, hard and
roll candies and coated nuts. In fiscal 1996, 86.0% of the Company's net sales
in this category were attributed to products packaged in Single-Serve Sizes,
11.3% were attributed to products packaged in Multi-Serve Sizes and 2.7% of all
candy products were attributed to Contract Sales.
Affiliated Products. The Company has affiliate arrangements to purchase
and re-sell Affiliated Products, such as "Leaf" brand gum and candies and
Goodmark Foods Inc.'s line of meat snacks, through Company distributors. The
Company engages Affiliated Suppliers based upon market demand for food products
not manufactured by the Company. In fiscal 1996, Affiliated Products represented
5.0% of the Company's net sales.
The Company also promotes the sale of certain snack foods, confection
products and hot and cold beverages of certain companies, such as the Coca-Cola
Company, for which it receives promotional allowances.
DISTRIBUTION
The Company's products are primarily marketed by the Company's network of
distributors: (i) directly to the public through one of the largest,
single-label vending machine networks in the United States; and (ii) to retail
outlets through a direct store delivery system. The Company also sells its
products to National Accounts, mainly supermarkets, larger convenience stores
and mass merchandisers, with distributors acting as delivery agents.
Additionally, the Company manufactures products for other manufacturers on a
Contract Sales basis. The remainder of the Company's revenues are derived from
export sales, Direct Sales (as defined) and other miscellaneous sales.
Management believes that one of the Company's competitive advantages is
that it emphasizes different distribution channels relative to the industry as a
whole. For example, in 1996, 58.0% of the total sales in the snack food industry
were through supermarkets and mass merchandisers, while only 6.9% were through
vending machines. By comparison, for the same period, 52.6% of the Company's net
sales were through its distribution network, which reaches the customer through
vending machines and smaller retail outlets, while only 25.6% of the Company's
net sales were achieved directly through supermarkets, larger convenience stores
and mass merchandisers. The Company's business strategy emphasizes the smaller
outlets which are not a primary focus of the larger national industry
participants.
Below is a breakdown of the Company's net sales by channel of distribution
for the past two fiscal years and the first twenty-four weeks of 1997:
TOM'S FOODS NET SALES BY DISTRIBUTION CHANNEL
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
24-WEEK PERIOD
ENDED
FISCAL 1995 FISCAL 1996 JUNE 14, 1997
----------------- ----------------- -----------------
DISTRIBUTION CHANNEL $ % $ % $ %
-------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Distributor Network(a)................... $130.9 66.0% $128.9 62.6% $ 61.8 61.5%
National Accounts(b)..................... 53.4 26.9 52.8 25.6 25.8 25.7
Contract Sales, Direct Sales, and
Other(c)............................... 14.0 7.1 24.2 11.8 12.9 12.8
------ ----- ------ ----- ------ -----
Total............................... $198.3 100.0% $205.9 100.0% $100.5 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
- - ---------------
(a) Distributors sell products through retail outlets and vending machines.
Certain distributors also serve as delivery agents for the Company with
respect to National Accounts, for which such distributors are paid a service
fee.
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<PAGE> 52
(b) Includes supermarkets, national chain convenience stores and mass
merchandisers.
(c) Includes fiscal 1996 net sales of $21.2 million attributed to Contract
Sales, export sales of $2.2 million, Direct Sales of $600,000 and
miscellaneous sales of $200,000.
DISTRIBUTOR NETWORK
Sales through the Company's network of distributors accounted for
approximately 62.6% of the Company's net sales in fiscal year 1996. The Company
ships freshly-made merchandise each day directly to its distributor network
located throughout the United States. The network of distributors, in turn,
delivers products to small or independent retail outlets and vending machines in
43 states through a total of approximately 2,348 sales routes. As of June 14,
1997, 915 independent distributors operated approximately 2,131 of these sales
routes. The remaining routes are operated by Company employees. Distributors own
or lease trucks and vending machines and market and distribute the Company's
products in specific geographic areas. The distributors control the variety of
items carried by the stores and in their vending machines and are responsible
for ensuring optimal shelf space, attractive display of the products and product
freshness. The Company-operated routes represent distributorships which have
been acquired by the Company: (i) to protect and develop a market distribution
base; (ii) due to the financial failure; or (iii) due to lack of growth of an
independent distributor. The Company plans to continue to operate these routes
where profitable, rehabilitate or close unprofitable routes and remarket routes
to other independent distributors where conditions warrant.
The Company's distributors may operate one or multiple sales routes.
Approximately 50.0% of the Company's distributors have multiple routes. The
Company's multi-route distributors operate up to 37 routes with an average of
3.7 routes per multi-route distributor. No single distributor accounts for more
than 1.5% of the Company's net sales.
Retail Outlets. Distributor sales to independent retail outlets are
primarily concentrated in the southeastern and southwestern United States. In
addition, the Company maintains a relatively small but rapidly growing retail
presence in the western, mid-Atlantic and northeast regions of the United
States. The Company believes its presence in the independent retail distribution
channel is one of Tom's Foods' competitive advantages.
Utilizing a direct store delivery system, route drivers bring product
directly into stores and provide merchandising services such as stocking and
rotating products and setting displays. The Company's broad range of products
and the distributors' ability to offer complete in-store merchandising and
product service are strong incentives for retailers to purchase the Company's
products.
Vending Machines. The Company is one of the largest single-label machine
vendors of snacks in the United States. Vending machines which dispense the
Company's products, the majority of which are owned by the Company's independent
distributors, are located principally in factories, schools, service stations,
office buildings, motels and rest areas, primarily in the southeastern and
southwestern United States.
In addition to its name brand products, the Company has authorized its
distributors to sell Affiliated Products, which are not produced by the Company
but are necessary from a distribution perspective to appropriately serve
customers. The Affiliated Products are largely sold through the vending channel,
although some of the Affiliated Products are sold through retail outlets.
NATIONAL ACCOUNTS
Sales of the Company's products to supermarket chains and larger retail
outlets, such as those operated by Winn Dixie Stores, Inc., Kmart Corporation,
Hannaford Brothers Co., The Circle K Corporation, Diamond Shamrock, Inc. and The
Kroger Co. and to military bases and mass merchandisers, such as Wal-Mart Stores
Inc., are handled under the Company's national accounts program ("National
Accounts"), which accounted for approximately 25.6% of the Company's net sales
in fiscal 1996. Delivery of products to National Accounts is made through the
Company's independent distributors, which are paid a service fee by the Company,
and the Company-owned and operated routes. Independent distributors are
consigned product inventory to make
49
<PAGE> 53
these deliveries and are paid a fee for warehousing the consigned inventory,
making the deliveries and servicing the account.
The National Accounts program has been developed to meet the special needs
of chains with outlets in areas serviced by more than one distributor and
requiring special handling, such as centralized billing, standardized
promotional offerings, disciplined merchandising policies and uniform pricing.
The Company believes that use of its internal sales organization allows it to
support its independent distributors and provide these services more
effectively.
CONTRACT SALES AND DIRECT SALES
To maximize the use of its manufacturing capacity, the Company manufactures
products for other snack food companies and large retail customers under
contract packaging agreements. Products manufactured for Contract Sales include
sandwich crackers, candy and some peanut and chip items. The Company also sells
and ships selected products directly to certain retailers' warehouses ("Direct
Sales"). Contract Sales and Direct Sales, along with certain other miscellaneous
sales, accounted for approximately 11.8% of the Company's net sales in fiscal
1996.
DISTRIBUTORSHIP ARRANGEMENTS
The Company currently enters into three types of arrangements with its
distributors: (i) vending distributorships, which grant the right to sell and
distribute the Company's products through vending machines or through purchasers
who resell the products solely for resale through vending machines; (ii) over-
the-counter ("OTC")/delivery agent distributorships, which grant the right to
sell Company products by direct store delivery and, for a fee, deliver products
to the Company's National Accounts customers; and (iii) combination
distributorships, which grant the rights of both the vending distributorship and
the OTC/delivery agent distributorship.
Pre-1997 Distributorship Arrangements. Of the Company's 915 independent
distributors, 563 operate under informal agreements or have not entered into any
written distributorship agreement with the Company. Of the remaining 352
distributors, 335 operate distributorships under previous agreements with other
terms and provisions, including without limitation, in certain agreements,
longer initial terms, the right of distributors to terminate such agreements
upon 90 days' notice and the right to request free consulting advice from the
Company and management assistance at the Company's cost for up to six months,
provided the distributor making such request is not in default under its
distributor agreement.
1997 Distributor Agreement. As of June 14, 1997, 17 distributors have
entered into a revised distributor agreement, which reflects the newly hired
senior management team's philosophy of working more closely with its
distributors and holding them accountable to certain performance standards (the
"1997 Distributor Agreement"). The Company will require new distributors, and,
as old agreements expire, existing distributors, to execute the 1997 Distributor
Agreement. The 1997 Distributor Agreement is for an initial term of seven years
and is renewable for five year terms, subject to certain conditions and unless
terminated earlier pursuant to its terms. Distributors must purchase a minimum
quantity of products at the prices and on the terms specified in the 1997
Distributor Agreement and may sell only merchandise approved by and purchased
from or approved for purchase by the Company. The 1997 Distributor Agreement
also sets minimum growth requirements depending on the volume generated by the
distributor.
Non-Exclusivity. Under the 1997 Distributor Agreement, distributors are
granted the right to distribute the Company's products through certain methods
in a precise geographic area (an "Area"). Except in cases of default under the
1997 Distributor Agreement, the Company will not designate another distributor
to sell products through the same methods of distribution in the same Area,
except that the Company or its designees may sell and distribute the Company's
products in certain circumstances, including where the products and services
being sold by the Company are not similar to the products distributed by a
distributor in that Area.
Continuing Services. Pursuant to the 1997 Distributor Agreement and
subject to certain limitations, the Company is required to provide certain
services to its distributors, including product delivery, provision of
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<PAGE> 54
training and marketing programs, limited management assistance in certain
circumstances, support with respect to vending machine repair and maintenance
services and continued development of new products.
Repurchase Requirement of the Company. In order to provide distributors
with an exit strategy, the Company has agreed that, upon request, it will
repurchase the distributorship assets of any distributor that has been in full
compliance with all of the terms and conditions of the 1997 Distributor
Agreement at all times for three years prior to the request. The 1997
Distributor Agreement is the only type of distributor agreement which contains
this repurchase obligation. As of June 14, 1997, 17 of the Company's
distributors signed the 1997 Distributor Agreement, the first of which was
effective in early 1997. Consequently, the Company will not be required to
repurchase distributorships, if so requested, pursuant to the 1997 Distributor
Agreement until the first distributors become eligible in 2000. Upon completion
of due diligence and market analysis, on the terms and conditions and subject to
the limitations set forth in the 1997 Distributor Agreement, the Company will be
required to purchase the distributorship and its assets for a price equal to 3.5
times the amount of the average annual Net Free Cash Flow of the
distributorship, measured over the past three years. Net Free Cash Flow is
calculated by the Company in accordance with limitations and exclusions set
forth in the 1997 Distributor Agreement and excludes debt service, income taxes,
dividends, owner withdrawals (other than reasonable management compensation) and
any receipts arising from service to the Company as a delivery agent to National
Accounts. With respect to assets that a distributor demonstrates are used
exclusively in the performance of such distributor's duties as a delivery agent
to National Accounts, the Company will repurchase those assets at a mutually
agreed upon value. If such agreement cannot be reached, the parties agree to
rely upon the assessment of an independent appraiser. The Company has the option
of paying for the distributorship and its assets in cash or by a promissory note
on mutually agreeable terms.
If a distributor requests that the Company purchase the assets of its
distributorship but the distributor has not been in compliance with its 1997
Distributor Agreement for the preceding three years, the Company then has 45
days in which it may, but is not required to, purchase all or a portion of the
assets of the distributorship making the request.
Underdeveloped Areas. The continuation of the distributor's right to
distribute and sell products in an Area depends upon certain contingencies,
including attainment of certain sales volume or revenue growth, market
penetration and development of channels of distribution. If the Company
determines that a distributor has not developed all regions or all authorized
channels of distribution within its Area and the Company and the distributor are
unable to reach a mutually acceptable plan of development for such Area (an
"Underdeveloped Area"), then the Company will have an option to purchase all or
a portion of the distributor's assets located within the Underdeveloped Area at
an amount equal to 5.0% of the distributor's annual gross over-the-counter sales
of products within the Underdeveloped Area over the preceding twelve months plus
the fair market value of the physical assets purchased. In the case of the
purchase of vending assets, the Company will pay 7.0% of the distributor's
annual gross vending sales of products within the Underdeveloped Area over the
preceding twelve months plus the fair market value of any physical assets
purchased.
Covenant Not to Compete. While acting as distributors and for a period of
two years thereafter, distributors agree not to engage in, or have any interest
in, any business engaged in the sale or distribution of prepackaged,
ready-to-eat snack food products to customers within the distributor's Area,
other than the Company. Distributors are also prohibited from disclosing trade
secrets and other confidential information.
DISTRIBUTOR FINANCING/STI DEBT
The Company no longer provides financing to distributors but maintains
strong relationships with vending machine manufacturers, financing companies and
other key providers of financing that result in substantial discounts and
financing programs for the Company's distributor network. Since 1990, a number
of the Company's distributors have had financing arrangements with STI, which
were generally collateralized with route distribution equipment (vending
machines, trucks, hand held computers, etc.) and routes. The Company's previous
practice of partially or fully guaranteeing this distributor financing gave rise
to the STI
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<PAGE> 55
Debt. As of June 14, 1997, the Company had recognized an obligation on its
balance sheet of $8.0 million related primarily to defaulted notes from failed
distributors to STI.
On October 14, 1997, the Company paid STI $10.0 million of the proceeds
from the Old Note Offering in full satisfaction of the STI Debt. STI then
assigned all of its rights against distributors which defaulted on financing
arrangements with STI prior to August 1, 1997 and the collateral related thereto
to the Company. Approximately 390 of the Company's distributors still have
financing arrangements with STI, although these arrangements are no longer
guaranteed by the Company. In the event these distributors default and STI
subsequently forecloses on some or all of the collateral pledged by such
distributors, STI will control certain of the Company's distributor assets and
routes. The Company will have a first option to purchase any such foreclosed
collateral from STI at 40.0% of the outstanding obligation on which STI
foreclosed.
SALES AND MARKETING
The Company's field sales force, together with the Company's distributor
development department, are responsible for sourcing, selecting and training new
distributors. In addition, the field sales force assists independent
distributors in developing new routes, opening new accounts, running promotions
and is available to advise distributors on operational and management issues
that may arise. The Company also maintains a National Accounts sales
organization to manage sales relationships with its chain store customers.
The Company has a 19-person in-house marketing department. The marketing
department is dedicated to: (i) developing new products, improving existing
products and coordinating all packaging changes; (ii) developing and evaluating
the Company's trade and consumer promotions, National Accounts merchandising
programs, sales aids and display equipment and distributor programs; (iii)
assisting sales personnel with business reviews and forecasting; and (iv)
coordinating the sales and product activities with the Company's major contract
customers.
NEW PRODUCT DEVELOPMENT
The Company is committed to developing new products to meet changing
customer demands and attract new customers. The Company generally does not
develop new types of snack foods, but instead creates products designed to meet
existing customer demand based on proven product concepts already in the market.
The Company adds new products to its line only after considering the new
product's potential profitability, manufacturing feasibility and optimal
channels of distribution. The Company also reviews a new product's competitive
advantage in the marketplace and its fit with the Company's business strategy.
The Company has and will continue to introduce new flavors, redesign its
packaging and modify packaging sizes and weights, all of which are intended to
update and unify the brand image. Since 1995, the Company has introduced 61 new
products, 51 of which have been successfully integrated into the Company's
product lines, a rate which management believes exceeds the industry average. In
fiscal 1996 and for the 24-week period ending June 14, 1997, the Company spent
$600,000 and $500,000, respectively, developing, sampling and promoting new
products.
COMPETITION
The snack food industry is highly competitive. The Company competes on the
basis of overall customer satisfaction which includes price, flavor, freshness
and quality.
In the Company's principal geographic markets, the southeastern and
southwestern United States, the Company's major competitors include Frito-Lay
and Lance, Inc. ("Lance") both of which the Company views as "full-line" snack
food competitors in the salty snack segment. The Company defines a "full-line"
participant as a snack food company which has products in all the Company's
major snack categories, including nuts, candy, sandwich crackers, baked goods,
potato chips, corn/tortilla chips and extruded snacks, such as cheese puffs.
Other industry participants maintain a presence in a limited number of these
product categories, such as chips or baked goods. The Company believes that
Frito-Lay is the Company's major competitor and has been for over 20 years, with
domestic sales of $6.6 billion in 1996. Although the industry
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<PAGE> 56
has recently experienced significant industry consolidation, in 1996 no
manufacturer other than Frito-Lay had more than a 1.0% market share in the 14
product sub-categories in which the Company competes.
The Company's major competitors by product line include the following:
<TABLE>
<CAPTION>
PRODUCT LINE MAJOR COMPETITORS
------------ -----------------
<S> <C>
Chips.............. Frito-Lay, Golden Flake Snack Foods Inc., Wise Potato Chip
Co.
Sandwich
Crackers......... Frito-Lay, Golden Flake Snack Foods Inc., Keebler, Lance,
Nabisco, Wise Potato Chip Co.
Baked Goods........ Interstate Bakeries Corporation (Dolly Madison/Hostess
brands), Keebler, McKey Holdings Ltd., Nabisco
Nuts............... Fisher Nut Company, Frito-Lay, Lance, Nabisco (Planter's
brand), John B. Sanfilippo & Son, Inc., Sun-Diamond Growers
of California
Candy.............. Brach & Brock Confections, Inc., Favorite Brands
International, Inc., Hershey Foods Corporation, M&M/Mars,
Nabisco, Nestle USA Inc.
</TABLE>
The Company believes it enjoys several competitive advantages relative to
its competitors including a strong presence in distribution channels such as
vending machines, independent retail outlets and convenience stores, and its
extensive distributor network, which management believes is able to effectively
serve these distribution channels.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal raw materials used in the production of the Company's snack
food products are: packaging materials; potatoes, nuts and other agricultural
products; and flour, corn, oils, and other milled or refined products.
The Company has approximately 22 suppliers of packaging materials, such as
film, foil and cardboard used for product packaging as well as shipping and
display purposes. The Company has not experienced difficulty in satisfying its
requirements with respect to packaging materials and considers its sources of
supply to be adequate. In addition, there are readily available alternative
suppliers for the Company's packaging materials.
The Company has approximately 19 suppliers of potatoes, with none of the
suppliers providing more than 15.0% of the Company's annual potato requirement.
The Company believes it has adequate potato supply sources to meet its
requirements for fiscal 1997. In the event the demand for potatoes exceeds
requirements at any time, the Company could experience shortages. In addition,
the Company believes that what it considers to be normal fluctuations in the
price of potatoes from year to year have and will continue to impact the
Company's cost of manufacturing potato chips, its largest product category.
The Company currently purchases its supply of peanuts indirectly from
approximately 175 independent farmers and the Company has approximately four
primary suppliers of other agricultural products such as flour, corn and oil.
The Company finances its peanut purchases through an arrangement with Golden
Peanut. The prices of peanuts and other agricultural products used by the
Company have been subject to little fluctuation in the last three years. The
Company believes it has adequate sources of peanuts and other agricultural
products to meet its requirements for fiscal 1997. In addition, there are
readily available alternative suppliers for these products.
The Company believes that its ability to promote alternative products
within its diversified product line allows it to absorb most atypical
fluctuations which may impact the cost of products in any one category.
GOVERNMENT REGULATION
As a manufacturer and marketer of food items, the Company is subject to
regulation by various government agencies, including the USDA and the United
States Food and Drug Administration. Under various statutes and regulations,
such agencies prescribe requirements and establish standards for quality and
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<PAGE> 57
purity. The finding of a failure to comply with one or more regulatory
requirements can result in variety of sanctions, including monetary fines and/or
compulsory withdrawal of products from store shelves. The Company may also be
required to comply from time to time with state and local laws regulating food
handling and storage.
In addition to laws relating to food products, the Company is subject to
various federal, state and local environmental laws and regulations which limit
the discharge, storage, handling and disposal of a variety of substances. The
Company's operations are also governed by laws and regulations relating to
workplace safety and worker health, principally the Occupational Safety and
Health Administration Act and regulations and applicable state laws and
regulations thereunder.
The Company believes that it is in compliance in all material respects with
all presently applicable governmental laws and regulations and that the cost of
administration of compliance with existing laws and regulations does not have,
and is not expected to have, a material adverse impact on the Company's
financial condition or results of operations.
PROPERTIES
The Company owns and operates seven plants in five states. Sandwich
crackers, baked goods, nuts and candy products are produced in three plants
located in Columbus, Georgia, which is also the location of the Company's
headquarters. Chips are manufactured in four plants located in Fresno,
California; Perry, Florida; Knoxville, Tennessee; and Corsicana, Texas. The key
markets in the southeastern and southwestern United States are served by the
Perry, Columbus, Knoxville and Corsicana plants. The Fresno plant primarily
services Arizona, California and Nevada and to a lesser extent Oregon and
Washington. Products produced in Columbus are cross-docked through the Fresno
shipping facility. All of the Company's facilities have sufficient additional
capacity, some of which is used to package products on a contract basis for
other snack food manufacturers. The Company also leases certain properties in
connection with its field sales and Company-owned routes and owns two parcels of
property not reflected in the chart below. Set forth below is a list and
description of the material properties owned by the Company:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET DATE BUILT EMPLOYEES(a) PRODUCTS/OTHER USE
- - -------- ----------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Columbus, GA......... 147,000 1950 - 1970 587(b) Headquarters
Columbus, GA......... 142,000 1950 - 1970 35 Warehouse
Columbus, GA......... 104,000 1967 277 Baked Goods and Sandwich Crackers
Columbus, GA......... 85,000 1926 - 1977 102 Peanuts
Columbus, GA......... 70,000 1929 - 1954 55 Candy
Knoxville, TN........ 116,000 1982 254 Chips
Perry, FL............ 111,000 1982 80 Chips
Corsicana, TX........ 84,000 1963 203 Chips
Fresno, CA........... 47,000 1974 48 Chips
</TABLE>
- - ---------------
(a) Number of employees as of June 14, 1997.
(b) Includes field personnel.
INTELLECTUAL PROPERTY
The Company operates under the trademark, service mark and trade name
"TOM'S" and uses various marks and logos containing "TOM'S" (collectively, the
"Company Marks"). The Company's products are sold under a number of trademarks.
Most of these trademarks, including the widely recognized "TOM'S" brand name,
are owned by the Company.
Pursuant to the 1997 Distributor Agreement, distributors are granted a
non-exclusive license to use certain of the Company Marks. The 1997 Distributor
Agreement otherwise provides that distributors shall make no use of the Company
Marks, nor engage in any program or activity which makes use of or contains
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<PAGE> 58
any reference to the Company, its products or the Company Marks, except with
written consent of the Company.
The Company has and will continue to maintain and vigorously defend its
intellectual property rights, including policing its trademark rights by
pursuing trademark infringers.
EMPLOYEES
As of June 14, 1997 the Company had approximately 1,641 full-time
employees, including 901 in the manufacturing facilities, 410 in sales and
marketing and 330 in administration and support operations. None of the
Company's employees are subject to collective bargaining agreements. The Company
considers its employee relations to be good.
LEGAL PROCEEDINGS
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to any
such litigation cannot be determined, in the opinion of management, such
liability is not expected to have a material adverse effect on the Company's
financial condition or results of operations.
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<PAGE> 59
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- - ---- --- -----------
<S> <C> <C>
Michael E. Heisley........................ 60 Chairman of the Board and Director
Rolland G. Divin.......................... 50 President, Chief Executive Officer and
Director
Stanley H. Meadows(a)..................... 52 Assistant Secretary and Director
Thomas C. Mattick......................... 57 Director
Emily Heisley Stoeckel.................... 33 Director
Andrew G. C. Sage II(a)................... 71 Director
S. Albert Gaston.......................... 38 Senior Vice President and Chief Financial
Officer
Gerald R. Barker.......................... 51 Senior Vice President -- Marketing
Wyatt F. Hearp............................ 50 Vice President -- Manufacturing
Paul C. Serff............................. 57 Senior Vice President -- Human Resources
</TABLE>
- - ---------------
(a) Member of the Compensation Committee. Mark A. Bounds, a Director of TFH and
TFCC, is also a member of the Compensation Committee.
Michael E. Heisley. Mr. Heisley has been the Chairman of the Board of
Directors of the Company since May 1993. Since 1988, Mr. Heisley has been the
Manager, President and Chief Executive Officer of The Heico Companies, L.L.C., a
holding company in Chicago, Illinois which acquires or invests in and operates a
diverse group of businesses. Mr. Heisley also serves as the Chief Executive
Officer of various of The Heico Companies, L.L.C.'s subsidiaries and is a
Director of Robertson-Ceco Corp. and Environdyne Industries, Inc., both of which
are publicly-held companies. Mr. Heisley received a bachelor's degree in
business administration from Georgetown University in 1960. Mr. Heisley is the
father of Emily Heisley Stoeckel.
Rolland G. Divin. Mr. Divin has been the President, Chief Executive
Officer and a Director of the Company since January 1995. From December 1991 to
January 1995, Mr. Divin was the President and Chief Executive Officer of Chun
King, Inc., a national brand food business based in Cambridge, Maryland. Prior
to joining Chun King, Mr. Divin was the President, Chief Executive Officer and a
Director of Orange Co., Inc., a publicly-held national brand food company based
in Bartow, Florida from 1989 to 1991. Mr. Divin graduated from Kansas State
University in 1970 with a multi-discipline bachelor's of science degree in
business/pre-veterinary studies and has completed graduate studies in finance at
the University of Minnesota-St. Paul.
Stanley H. Meadows. Mr. Meadows has been the Assistant Secretary and a
Director of the Company since May 1993. Since 1980 he has been a partner
(through a professional corporation) of McDermott, Will & Emery, a law firm
based in Chicago, Illinois which provides legal services to the Company, TFH and
TFCC. Mr. Meadows is also a Director of Robertson-Ceco Corp., a publicly-held
company. Mr. Meadows received a bachelor of science degree from the University
of Illinois in 1966 and a law degree from the University of Chicago in 1970.
Thomas C. Mattick. Mr. Mattick has been a Director of the Company since
May 1993. Mr. Mattick is a CPA and has been Managing Director of Heico
Acquisitions, Inc. an acquisition company in Chicago, Illinois, since January
1992. Mr. Mattick received a bachelor's degree in business administration from
the University of Wisconsin in 1962.
Emily Heisley Stoeckel. Ms. Stoeckel has been a Director of the Company
since August 1996. She has held various positions with Heico Acquisitions, Inc.
in Chicago, Illinois since January 1989 and has been Vice President since
January 1996. Ms. Stoeckel received a bachelor of arts degree in economics from
Northwestern University in 1987 and a master's degree in business administration
from the University of Chicago in 1991. Ms. Stoeckel is the daughter of Michael
E. Heisley.
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Andrew G. C. Sage II. Mr. Sage has been a Director of the Company since
1993. Mr. Sage held various positions with Shearson Lehman Brothers, Inc. and
its predecessors, Lehman Brothers and Lehman Brothers Kuhn Loeb, Inc., since
joining the investment bank in 1948, including General Partner from 1960-1970,
President from 1970-1973, Vice Chairman from 1973-1977, Managing Director from
1977-1987, and Senior Consultant from 1987-1990. Since 1990, Mr. Sage has been a
consultant in general business and financial management. Mr. Sage is a Director
of Robertson-Ceco Corp. and Computervision Corporation, both of which are
publicly-held companies.
S. Albert Gaston. Mr. Gaston has been the Senior Vice President and Chief
Financial Officer of the Company since April 1995. From November 1989 to April
1995, Mr. Gaston was the Vice President and Chief Financial Officer of Apache
Products Company, a building materials manufacturer and distributor
headquartered in Meridian, Mississippi. Mr. Gaston is a CPA and received his
bachelor's degree in business administration from Millsaps College in 1981 and
his masters degree in business administration from Southern Methodist University
in 1987.
Gerald R. Barker. Mr. Barker has been the Senior Vice President --
Marketing of the Company since August 1995. Prior to joining the Company, Mr.
Barker served as a marketing officer for Borden Inc., a national brand food
company, in Atlanta, Georgia from September 1987 through June 1995. Mr. Barker
has a bachelor's degree in economics degree from State University of New York in
1969 and a masters degree in business administration from Arizona State
University in 1974.
Wyatt F. Hearp. Mr. Hearp has been Vice President -- Manufacturing of the
Company since 1995. Prior to becoming an officer, Mr. Hearp held various
positions with the Company or its predecessor businesses since 1972, including
manager of the Company's chip division from 1990 to 1995. Mr. Hearp received a
bachelor's degree in biology from High Point University in 1969 and a master's
of science degree in food technology from Auburn University in 1977.
Paul C. Serff. Mr. Serff has been the Senior Vice President -- Human
Resources of the Company or its predecessor businesses since August 1987. Mr.
Serff received a bachelor's degree in industrial management from the Georgia
Institute of Technology in 1961 and a master's degree in business administration
from Emory University in 1964.
TERM OF OFFICE
Each member of the Board of Directors of the Company is elected annually.
All officers serve at the pleasure of the Board of Directors.
DIRECTOR COMPENSATION
All directors may be reimbursed for certain expenses in connection with
attendance at Board and committee meetings. Other than with respect to
reimbursement of expenses, directors do not receive additional compensation for
service as a director.
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EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company in 1996 by the Company's
chief executive officer and the Company's next four most highly compensated
executive officers (each, a "Named Officer"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME PRINCIPAL POSITION SALARY BONUS(a)
- - ---- ------------------ -------- --------
<S> <C> <C> <C>
Rolland G. Divin........... President, Chief Executive Officer and Director $262,500 $212,012
S. Albert Gaston........... Senior Vice President and Chief Financial Officer 143,461 63,322
Gerald R. Barker........... Senior Vice President -- Marketing 133,461 58,444
Paul C. Serff.............. Senior Vice President -- Human Resources 133,133 58,890
Wyatt F. Hearp............. Vice President -- Manufacturing/Distribution 107,567 47,831
</TABLE>
- - ---------------
(a) Bonus amounts reflect amounts paid in 1997 based upon services rendered to
the Company in the 1996 fiscal year.
DEFINED BENEFIT RETIREMENT PLANS
The Company has two noncontributory defined benefit retirement plans (the
"Hourly Plan" and the "Salaried Plan") which cover substantially all full-time
employees who are at least 21 years of age. The Company also has an unqualified
pension plan ("Unqualified Plan") covering only certain salaried employees. The
plans provide for payment of monthly benefits to participants upon their
reaching normal retirement dates. Benefit amounts are determined by a benefit
formula which considers length of service and average salary for the Salaried
Plan and the Unqualified Plan and length of service multiplied by a fixed rate,
as determined by the Company, for the Hourly Plan.
Salaried Plan. For those employees participating in the Salaried Plan, the
Company estimates that the following annual benefits would be payable upon
retirement at or after age 60 to persons at the following compensation and
year-of-service classifications, less amounts received as social security
benefits:
TOM'S FOODS INC. PENSION PLAN FOR SALARIED EMPLOYEES
SUPPLEMENTAL RETIREMENT PLAN TABLE
Annual Pension Payable at Age 65
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------
COMPENSATION(a) 5 10 15 20 25 30 OR MORE
--------------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
$100,000............................. $ 6,767 $13,535 $20,302 $27,070 $33,837 $40,604
125,000............................. 8,642 17,285 25,927 34,570 43,212 51,854
150,000............................. 10,517 21,035 31,552 42,070 52,587 63,104
200,000............................. 11,267 22,535 33,802 45,070 56,337 67,604
300,000............................. 11,267 22,535 33,802 45,070 56,337 67,604
500,000............................. 11,267 22,535 33,802 45,070 56,337 67,604
</TABLE>
- - ---------------
(a) Compensation is assumed to be constant. Table is based on covered
compensation of $27,540 for a participant turning 65 in 1997. The IRC
Section 401(a)(17) limit on compensation is assumed constant at the 1997
level of $160,000.
The compensation used to determine a person's benefits under the Salaried
Plan and the Unqualified Plan includes such person's salary and annual bonus,
whether or not deferred. The current compensation for each of the Named Officers
is identical to the amounts listed in the Summary Compensation Table. The
estimated
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<PAGE> 62
credited years of service at the end of fiscal 1996 for each of the Named
Officers are 2.0 years for Mr. Divin, 1.7 years for Mr. Gaston, 1.3 years for
Mr. Barker, 9.3 years for Mr. Serff and 23.6 years for Mr. Hearp.
Unqualified Plan. The Supplemental Employee Retirement Plan of Tom's Foods
Inc. (the "SERP") provides employees designated by the Company with certain
pension benefits upon retirement on or after age 58 (55 for certain employees)
in order to supplement benefits provided under the Company's qualified plans and
Social Security. The SERP generally provides for lifetime benefits of 50.0% of
average monthly compensation less 50.0% of primary Social Security, reduced for
service less than 30 years and receipt prior to age 62 1/2, and further offset
by the actuarial value of prior cash payments. Of the five Named Officers, only
Mr. Serff participates in the SERP. The Company estimates that the annual
benefits payable to Mr. Serff at normal retirement age pursuant to the SERP
would be $20,518.
Hourly Plan. The Hourly Plan provides hourly employees with certain
pension benefits upon retirement on or after age 55 if the employees worked five
or more years prior to termination. Generally, the plan provides for monthly
pension benefits based only on a participant's years of service. None of the
Named Officers participate in this plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Divin, the
Company's President and Chief Executive Officer, and Mr. Serff, the Company's
Vice President -- Human Resources. The employment agreement with Mr. Divin
provides for an ongoing 12-month term and is terminable by the Company upon 60
days prior notice. If the Company terminates the agreement without cause, if Mr.
Divin resigns because of a material breach by the Company or if Mr. Divin's
responsibilities are materially diminished after a change in control of the
Company, the Company will be required to pay Mr. Divin severance payments of up
to a maximum of 12 months of salary. The employment agreement with Mr. Serff
provides for an ongoing 24-month term. Should the Company terminate Mr. Serff's
employment without cause, the Company is required to pay Mr. Serff severance
payments for the remainder of the term, or a minimum of 24 months based on his
then-current salary. Each of Mr. Divin's and Mr. Serff's employment agreements
contains a covenant not to compete with the Company within certain geographic
areas for up to one year following the respective officer's resignation or
termination. Mr. Gaston and Mr. Barker also are entitled to severance payments
of up to a maximum of 12 months salary in certain circumstances.
INCENTIVE COMPENSATION PLANS
Management Incentive Compensation Plan. The Company's Management Incentive
Compensation Plan (the "Management Incentive Plan") is administered by the
Compensation Committee of the Board of Directors and applies to those key
employees designated by the President and Chief Executive Officer. The terms and
conditions upon which awards become payable are determined by the Compensation
Committee and subject to approval by the Board of Directors. Target incentive
amounts are expressed as a percentage of the key employees' salary and actual
incentive amounts are provided based on the Company's achievement of certain
criteria, including manufacturing profit and sales performance objectives. Each
of the Named Officers, as well as other key employees, participated in the
Management Incentive Plan in fiscal 1996.
Executive Incentive Plan. In addition, the Company's Executive Incentive
Plan (the "Executive Incentive Plan") applies to Mr. Divin, Mr. Gaston and Mr.
Barker (collectively, the "Participants"). Each of the Participants has an
option to acquire his allocated share of 20.0% of the Preferred Stock (including
any liquidation preferences accruing thereon) issued to TFH in satisfaction of
the TFH Debt. The options, which are allocated 60.0% to Mr. Divin, 20.0% to Mr.
Gaston and 20.0% to Mr. Barker, will expire if not exercised by December 31,
2002. The options to acquire Preferred Stock will vest, for those Participants
then employed by the Company, upon: (i) a sale of the Company or substantially
all its assets; (ii) an exchange of the outstanding Preferred Stock for Common
Stock of the Company; (iii) a Public Equity Offering; or (iv) a redemption of or
sale to a third party of the Preferred Stock (collectively, the "Exercise
Events"). In addition, the options to acquire Class A Preferred Stock may be
exercised at any time prior to December 31, 2002 if the Class A Preferred Stock
becomes exchangeable for Exchange Notes. The options to acquire Preferred Stock
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<PAGE> 63
shall apply to any partial exchanges under clause (ii) above, to partial
redemptions or sales under clause (iv) above and partial exchangeability of the
Class A Preferred Stock, to the extent of 20.0% of the amount exchanged,
redeemed, sold or exchangeable. The aggregate exercise price for the options
will be $1,000. The options vest as follows: (i) 33.33%, one year after
consummation of the Old Note Offering; (ii) 66.67%, two years after consummation
of the Old Note Offering; and (iii) 100.0%, three years after consummation of
the Old Note Offering. The grant of the options described herein will result in
a charge to compensation expense upon an Exercise Event equal to the dollar
amount of such options less the amount paid by Mr. Divin, Mr. Gaston and Mr.
Barker.
The Executive Incentive Plan further provided the Participants with a cash
payment in an aggregate amount of $1.0 million. 50.0% of such amount was paid
upon consummation of the Old Note Offering and 50.0% will be paid on December
31, 1998 to Participants then employed by the Company. TFH has an obligation to
pay $1.0 million to the Participants in cash from such amount, with $500,000
paid at consummation of the Old Note Offering and $500,000 due on December 31,
1998, subject to continued employment by the Company. The first payment resulted
in a $500,000 charge to compensation expense of the Company upon consummation of
the Old Note Offering. A similar charge will be recorded upon the $500,000
payment to be made on December 31, 1998.
All obligations to the Participants pursuant to the Executive Incentive
Plan are obligations solely of TFH, not of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation (the "Certificate") contains
provisions eliminating the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware General Corporation Law (the "DGCL"). These provisions in the
Certificate do not eliminate the duty of loyalty and, in appropriate
circumstances, equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under DGCL. Each director will
continue to be subject to liability for breach of a director's duty of loyalty
to the Company or its stockholders, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit and for
improper distributions to stockholders. These provisions also do not affect a
director's responsibilities under any other laws, such as federal securities
laws or federal environmental laws.
The Company's By-Laws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by law. The Company's By-Laws also
permit it to secure insurance on behalf of any person it is required to or
permitted to indemnify for any liability arising out of his or her actions in
such capacity, regardless of whether the By-Laws would permit indemnification.
The Company maintains liability insurance for its directors and officers.
At present, there is no pending litigation or proceeding involving any
director or officer of the Company where indemnification would be required or
permitted. The Company is not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification.
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<PAGE> 64
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The issued and outstanding Common Stock of the Company consists of 5,000
shares, 4,000 of which (80.0%) are held by TFH and 1,000 of which (20.0%) are
held by TFCC. All of the outstanding shares of Preferred Stock of the Company,
which are non-voting, are held by TFH. Under the terms of a Stockholders'
Agreement among all of the stockholders of TFH (the "TFH Stockholders'
Agreement"), Heico Holding, Inc. ("Heico Holding") is entitled to elect a
majority of the Boards of Directors of each of TFH and the Company. Michael E.
Heisley, Chairman of the Board and a Director of the Company, holds
substantially all of the voting securities of Heico Holding. Under the terms of
a Stockholders' Agreement among all of the Stockholders of TFCC (the "TFCC
Stockholders' Agreement"), Mr. Heisley is entitled to designate a majority of
the Board of Directors of TFCC. As a result of the foregoing, Mr. Heisley has
beneficial ownership of all of the outstanding capital stock of the Company.
Heico Holding holds 55.0% of the shares of common stock of TFH. The
remaining shares of common stock of TFH are held by Gerald D. Hosier ("Hosier")
(20.0%), Allstate Insurance Company ("Allstate") (15.0%) and TCW Shared
Opportunity Fund L.P. ("TCW") (10.0%). Pursuant to the TFH Stockholders'
Agreement, the consent of Heico Holding and one of Allstate, Hosier or TCW is
required in order to approve (a) a merger resulting in the sale of the Company,
(b) any sale of substantially all of the Company's assets, (b) asset sales, by
the Company in any fiscal year exceeding, in the aggregate, $7.5 million, (c)
acquisitions by the Company of assets in any fiscal year exceeding $7.5 million
in the aggregate, (d) capital expenditures by the Company in any fiscal year
exceeding $7.5 million in the aggregate, (e) certain issuance of capital stock
of the Company and (f) the incurrence by the Company of indebtedness for
borrowing money exceeding $7.5 million in the aggregate. In addition, each of
Allstate, TCW and Hosier has the right to designate one member of the Boards of
Directors of each of TFH and the Company.
The capitalization of TFCC consists of 30,750 shares of Class A 6%
Cumulative Convertible Preferred Stock (the "TFCC Class A Preferred Stock"), 867
shares of Class B Preferred Stock, 2,225.35 shares of Class C 6% Cumulative
Convertible Preferred Stock (the "TFCC Class C Preferred Stock"), 8,750 shares
of Class D 6% Cumulative Convertible Preferred Stock (the "TFCC Class D
Preferred Stock") and 410,734 shares of common stock (the "TFCC Common Stock").
Each share of TFCC Class A Preferred Stock, TFCC Class C Preferred Stock and
TFCC Class D Preferred Stock is convertible into 34.9895 shares of TFCC Common
Stock and has a liquidation preference of $1,000 plus unpaid dividends which
have accrued since May 13, 1993. TFCC Class A Preferred Stock and TFCC Class D
Preferred Stock rank pari passu and senior to all other TFCC preferred stock.
The TFCC Class A Preferred Stock and TFCC Class C Preferred Stock are entitled
to 34.9895 votes per share and vote together with TFCC Common Stock in all
matters upon which such holders are entitled to vote. TFCC Class B Preferred
Stock and TFCC Class D Preferred Stock are generally not voting. Allstate and
its affiliates hold 20,000 shares of TFCC Class A Preferred Stock with 44.7% of
the voting power of the outstanding voting securities of TFCC. Hosier holds
8,750 shares of TFCC Class A Preferred Stock with 19.6% of the voting power of
the outstanding voting securities of TFCC. Heico Holding holds 2,000 shares of
TFCC Class A Preferred Stock and 160,596 shares of TFCC Common Stock and TF
Partners, an affiliate of Mr. Heisley, holds 150,862 shares of TFCC Common
Stock. Heico Holding and TF Partners together hold voting securities with 24.4%
of the voting power of the outstanding voting securities of TFCC. In addition,
Allstate is entitled to designate two members of the Board of Directors of TFCC.
Of the Named Officers, each of Rolland G. Divin, S. Albert Gaston and Paul
C. Serff beneficially owns 48,664, 9,733 and 11,680 shares of TFCC Common Stock,
respectively, or 3.1%, 0.6% and 0.7%, respectively, of the voting power of the
outstanding voting securities of TFCC. In accordance with the Executive
Incentive Plan, each of Messrs. Divin, Gaston and Barker has the option to
acquire 12.0%, 4.0% and 4.0%, respectively, of the Preferred Stock issued to
TFH. See "Management -- Incentive Compensation Plans -- Executive Incentive
Plan."
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CERTAIN TRANSACTIONS
THE 1988 ACQUISITION
In June of 1988, TF Acquisition Corporation acquired the Company (the "1988
Acquisition") in a leveraged buy-out financed with (i) senior secured
indebtedness provided under the CIBC Debt, and (ii) certain subordinated
indebtedness. In connection with the 1988 Acquisition, the Company indemnified
its predecessor for its obligations with respect to the Industrial Development
Revenue Bonds (as defined). See "Description of Other Senior Indebtedness --
Description of Industrial Development Revenue Bonds." The Company supported such
indemnification by posting the Company's Letter of Credit and escrowing an
amount equal to one year's interest on the Industrial Development Revenue Bonds.
THE 1993 REFINANCING
In May of 1993, an investor group led by Michael E. Heisley, currently the
Chairman of the Board and a Director of the Company, acquired the existing
subordinated debt of the Company and exchanged it for preferred stock of TFCC
(the "1993 Refinancing"). In connection with the 1993 Refinancing, the Company
(i) borrowed the MassGeneral Debt and (ii) re-negotiated the terms of the CIBC
Debt. As a result of the 1993 Refinancing, the Company became a wholly-owned
subsidiary of TFCC.
THE 1996 REFINANCING
Prior to the 1996 Refinancing, Heico Holding, a 55.0% stockholder of TFH,
paid a total of $600,000 in fees to the lenders under the CIBC Debt in
consideration for such lenders agreeing to extend the maturity of the CIBC Debt
for the period of time required to complete the 1996 Refinancing. The Company
reimbursed Heico Holding for the fees at the closing of the 1996 Refinancing. In
consideration of Heico Holding advancing the fees to such lenders, the Company
transferred to Heico Holding a parcel of its real property located in Harris
County, Georgia. Heico Holding is controlled by Mr. Heisley, the Chairman of the
Board and a Director of the Company.
As part of the 1996 Refinancing, the Company entered into the Congress Loan
Facility, which provided the Company with up to $12.0 million of term loans
under the Congress Debt and up to $17.0 million of availability under the
Congress Revolving Loans. Proceeds from the Congress Debt were used, among other
things, to repay certain indebtedness of the Company. The Congress Revolving
Loans have been available for general working capital purposes.
In connection with the 1996 Refinancing, TFH was formed to, among other
things, acquire and refinance certain of the Company's long-term debt
obligations, including: (i) the $52.3 million outstanding of CIBC Debt; and (ii)
the $8.8 million outstanding of MassGeneral Debt, which included $1.3 million in
accrued interest which was subsequently paid to TFH. The terms of the TFH Debt
were modified to subordinate this debt to Congress, defer payments of principal
and interest owing thereon and increase the interest rate to 13.0% per annum. In
addition, the stockholders of TFH caused the TFH Stockholders' Letters of Credit
to be posted in the aggregate original face amount of $10.0 million to replace
the Company's Letter of Credit. In connection with the 1996 Refinancing, the TFH
Stockholders assigned their reimbursement rights against the Company to TFH and
TFH agreed to subordinate its rights to Congress. TFH has waived any rights or
claims to reimbursement by the Company in connection with such TFH Stockholders'
Letters of Credit through December 31, 2005 and has subordinated its rights to
reimbursement to the Notes. Thereafter, subject to the terms of the
subordination, the Company will be obligated to reimburse TFH for any draws
which have been or are subsequently made on the TFH Stockholders' Letters of
Credit.
In consideration of TFH's participation in the 1996 Refinancing, the
Company issued 4,000 shares of the Company's Common Stock to TFH, which
represents 80.0% of the issued and outstanding shares of the Company's Common
Stock, and paid TFH accrued interest owing on the MassGeneral Debt of
approximately $1.3 million.
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OTHER
Beginning with fiscal 1994, the Company has entered into consulting
arrangements with Mr. Heisley and Thomas C. Mattick, a Director of the Company,
for provision of consulting services to the Company. In respect of such
consulting services, Mr. Heisley and Mr. Mattick each received $100,000 per
year.
As a result of TFH's ownership of 80.0% of the Common Stock of the Company,
TFH and the Company are required to file a consolidated return for federal
income tax purposes. As the common parent of the consolidated group, TFH is
responsible for the payment of any consolidated tax liabilities. TFH and the
Company have entered into a tax sharing agreement which provides that, in
connection with the filing of the consolidated federal income tax return and the
filing of state income tax returns in those states in which the operations of
the Company are consolidated or combined with TFH, the Company shall be required
to pay to TFH an amount equal to the Company's federal and state tax liabilities
that the Company and its subsidiaries would have had to pay had the Company and
its subsidiaries filed their own separate, consolidated or combined tax returns.
TFCC has entered into restricted stock purchase agreements with each of
Rolland G. Divin, the Company's President and Chief Executive Officer, S. Albert
Gaston, the Company's Senior Vice President and Chief Financial Officer and Paul
C. Serff, the Company's Senior Vice President -- Human Resources. Pursuant to
the agreements, each of Mr. Divin and Mr. Gaston were granted restricted stock
in TFCC which vests over time in increments upon the respective officer's
continuing employment with the Company. Mr. Serff's restricted stock awards were
granted subject to: (i) vesting for one-half of the shares based upon Mr.
Serff's continued employment with the Company; and (ii) vesting for one-half of
the shares based upon the Company's achievement of certain objectives, including
certain financial targets. Each of Mr. Divin, Mr. Gaston and Mr. Serff have
vested and non-vested shares in TFCC pursuant to these agreements. See "Security
Ownership of Management and Certain Beneficial Owners."
TFH received a portion of the proceeds from the Old Note Offering and all
of the shares of Class A Preferred Stock and Class B Preferred Stock. Up to
$10.0 million of the Class A Preferred Stock is exchangeable for Exchange Notes.
The Class A Preferred Stock, the Class B Preferred Stock and the Exchange Notes
held by TFH will be restricted securities and will not be transferable unless
such securities are registered or an exemption from such registration is
available. Accordingly, in connection with the exchange of TFH Debt, the Company
granted to TFH and its transferees the right to require the Company, at the
Company's expense, to file a registration statement for the purpose of
registering the resale of the Class A Preferred Stock, Class B Preferred Stock
and Exchange Notes held by TFH.
DESCRIPTION OF OTHER SENIOR INDEBTEDNESS
DESCRIPTION OF WORKING CAPITAL FACILITY
On October 14, 1997 the Company entered into an Amended and Restated Credit
Agreement (the "Working Capital Loan Agreement") with Congress.
General. Under the terms of the Working Capital Loan Agreement, Congress
will provide the Company with a $17.0 million revolving credit facility (the
"Working Capital Facility"). Borrowings under the Working Capital Facility are
available to the extent that a sufficient borrowing base is present or to the
extent otherwise made available by Congress. Unused availability under the
Working Capital Facility is available for the working capital needs of the
Company. The Working Capital Facility will terminate, and any outstanding
revolving credit loans must be repaid in full on August 30, 1999, unless the
agreement is extended as provided.
Fees. The borrowings under the Working Capital Loan Agreement bear
interest at the Prime Rate (as such term is defined in the Working Capital Loan
Agreement) plus 1.375% per annum, or plus 3.375% per annum when the Company is
in default under the Working Capital Loan Agreement. Interest on the loans under
the Working Capital Facility is payable monthly in arrears. The Company is
required to pay customary closing, commitment and servicing fees to Congress.
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Security. Substantially all of the receivables and inventory (and certain
assets and rights relating thereto) of the Company are pledged to Congress as
security for the borrowings under the Working Capital Loan Agreement.
Covenants. The Working Capital Loan Agreement contains customary
restrictive financial and other covenants of the Company, including without
limitation: (i) reporting requirements; (ii) restrictions on the incurrence of
indebtedness, leases, liens and contingent obligations; (iii) restrictions on
mergers, acquisitions, sales of assets, investments and transactions with
affiliates; (iv) a prohibition on distributions and dividends to its
stockholders; (v) restrictions on capital expenditures and distributor
financing; and (vii) working capital and tangible net worth tests.
Events of Default. The events of default under the Working Capital Loan
Agreement includes, among others: (i) any failure of the Company to pay
principal or interest thereunder when due; (ii) the breach by the Company of
covenants, representations or warranties contained in the Working Capital Loan
Agreement; (iii) any failure to pay amounts due under certain other indebtedness
of the Company or defaults that result in or permit the acceleration of certain
other indebtedness of the Company; (iv) the bankruptcy, insolvency or
dissolution of the Company; (v) the occurrence of a Change in Control (as
defined in the Working Capital Loan Agreement); and (vi) the occurrence of a
material adverse change in the business, assets or prospects of the Company.
DESCRIPTION OF INDUSTRIAL DEVELOPMENT REVENUE BONDS
In October of 1979 (i) The Industrial Development Board of the County of
Knox, Tennessee (the "Board") issued Industrial Development Revenue Bonds
(General Mills, Inc. Project) in an aggregate principal amount of $4.2 million
(the "Knox County Industrial Development Revenue Bonds") to, among other things,
finance the cost of acquiring, constructing and installing an industrial plant
in Knox County, Tennessee (the "Knox County Plant"), and (ii) the County of
Taylor, Florida ("Taylor County") issued Industrial Development Revenue Bonds
(CPG Products Corp. Project) in an aggregate principal amount of $5.8 million
(the "Taylor County Industrial Development Revenue Bonds"; together with the
Knox County Industrial Development Revenue Bonds, collectively, the "Industrial
Development Revenue Bonds") to among other things, finance the acquisition of
real property, the construction of a building thereon, the installation of
certain machinery equipment, all located in Taylor County, Florida
(collectively, the "Taylor County Property, Plant and Equipment"). The Knox
County Plant and the Taylor County Property, Plant and Equipment are owned and
operated by the Company.
In connection with the issuance of the Industrial Development Revenue
Bonds, the predecessor of the Company entered into certain obligations with the
Board and Taylor County pursuant to which it guaranteed the interest and
principal payments on the Industrial Development Revenue Bonds. In connection
with the 1996 Refinancing, the TFH Stockholders posted the TFH Stockholders'
Letters of Credit naming a previous owner of the Company as beneficiary in
respect of its guarantee of obligations relating to the Industrial Development
Revenue Bonds. See "Certain Transactions." In addition, the Company has
approximately $1.4 million (as of June 14, 1997) in escrow for the benefit of
the Company's predecessor on the Industrial Development Revenue Bonds. The TFH
Stockholders have assigned all rights to reimbursement in connection with the
TFH Stockholders' Letters of Credit to TFH and TFH has subordinated its right to
reimbursement in connection with its obligations to Congress. TFH has waived any
rights to reimbursement by the Company in connection with such TFH Stockholders'
Letters of Credit through December 31, 2005 and has subordinated such rights to
the Trustee in connection with the Notes. The Industrial Development Revenue
Bonds are due in various amounts through 2009 at fixed interest rates ranging
from 6 1/2% to 6 3/4% and are collateralized by the Knox County Plant and the
Taylor County Property, Plant and Equipment. The holders of the Exchange Notes
will not have a security interest in any of the Industrial Development Revenue
Bonds collateral.
DESCRIPTION OF THE NOTES
The Old Notes were, and the Exchange Notes will be, issued under an
indenture (the "Indenture"), dated as of October 14, 1997 by and between the
Company and IBJ Schroder Bank & Trust Company, as Trustee (the "Trustee"). Upon
the issuance of the Exchange Notes, if any, or the effectiveness of a Shelf
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Registration Statement (as defined), the Indenture will be subject to and
governed by the provisions of the Trust Indenture Act of 1939, as amended (the
"TIA"). The following summary of certain provisions of the Indenture, the Notes
and the Security Documents does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the TIA, and to all of the
provisions of the Indenture, the Notes and the Security Documents (copies of
which can be obtained from the Company upon request), including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. The definitions
of certain capitalized terms used in the following summary are set forth under
"-- Certain Definitions" below.
The Notes will be senior secured obligations of the Company, ranking senior
in right of payment to all future Indebtedness of the Company which is
subordinated to the Notes and pari passu in right of payment with all existing
and future unsubordinated Indebtedness of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as paying agent and registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any paying agent and registrar without notice to Holders of the Notes. The
Company will pay principal (and premium, if any) on the Notes at the Trustee's
corporate office in New York, New York. At the Company's option, interest may be
paid at the Trustee's corporate trust office or by check mailed to the
registered address of Holders. Any Notes that remain outstanding after the
completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer and any Exchange Notes issued in exchange for
the Class A Preferred Stock, will be treated as a single class of securities
under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to $70.0
million. Up to $10.0 million of such amount may be issued from time to time in
exchange for the Class A Preferred Stock subject to the limitations set forth
under "-- Certain Covenants -- Limitation on Indebtedness." The Exchange Notes
will mature on November 1, 2004. The Exchange Notes will bear interest at the
rate of 10 1/2% per annum from October 14, 1997 or from the most recent interest
payment date to which interest has been paid, payable commencing on May 1, 1998
and thereafter semi-annually in arrears on each November 1 and May 1, to the
persons in whose name the Exchange Note is registered at the close of business
on the October 15 and April 15 immediately preceding the applicable interest
payment date. Interest on the Notes will accrue from and including the most
recent date to which interest has been paid or, if no interest has been paid,
from and including the date of issuance. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole at any time
or in part from time to time, on and after November 1, 2001 at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the 12-month period commencing on November 1 of the year set forth below,
plus, in each case, accrued interest thereon to the date of redemption:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
2001...................................................... 105.250%
2002...................................................... 102.625
2003 and thereafter....................................... 100.000
</TABLE>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING
In the event that the Company consummates one or more Public Equity
Offerings (as defined) on or before November 1, 2000, the Company may, at its
option, redeem from the net cash proceeds of such Public Equity Offering, no
later than 60 days following the consummation of such offering, up to 30.0% of
the aggregate principal amount of the Notes then outstanding at a redemption
price equal to 110.5% of the
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aggregate principal amount so redeemed, plus accrued and unpaid interest thereon
to the date of redemption; provided, however, that at least $45.0 million
principal amount of Notes remain outstanding.
As used in the preceding paragraph, "Public Equity Offerings" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes, or portions thereof, for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed or, if such Notes
are not then listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be redeemed
in part. Notice 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 a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the paying agent for the
Notes funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
SECURITY
All of the obligations of the Company under the Notes and the Indenture
will be secured by a Lien on substantially all of the Company's interests
(whether fee or leasehold) in all existing and future (i) real property (other
than the real property on which the Company's plants in Knox County, Tennessee
and Taylor County, Florida are located and certain other parcels of real
property having an aggregate book value of approximately $300,000 on June 14,
1997), in each case together with all fixtures, additions, accessions,
improvements, alterations, replacements and repairs thereto, (ii) machinery and
equipment (other than the machinery and equipment located at and/or used in
connection with the Company's plant in Taylor County, Florida), together with
all additions, accessions, improvements, alterations, replacements and repairs
thereto, (iii) intellectual property including, without limitation, all
trademarks, service marks, patents, copyrights, trade secrets and other
proprietary information, (iv) the assets deposited or required to be deposited
in the Collateral Account pursuant to the Indenture, (v) shares of Capital Stock
of each of the Company's Restricted Subsidiaries, if any, (vi) other items or
types of personal property (other than (A) inventory and accounts and general
intangibles related thereto, and other related personal property, products and
proceeds of inventory and accounts and general intangibles related thereto, and
other related personal property, (B) the cash escrow account pledged for the
benefit of the Industrial Revenue Bonds, and (C) the assets subject to the Liens
permitted by clause (xviii) of the definition of Permitted Liens), (vii) general
intangibles relating to any and all of the foregoing, and (viii) proceeds and
products of any and all of the foregoing (the property and assets described in
clauses (i) through (viii) above, together with all other property and assets
that may from time to time be subject to the Lien of the Security Documents, the
"Collateral"). The security interest in the Collateral will be a first priority
interest subject to certain permitted encumbrances, which encumbrances, in the
reasonable judgment of the Company, will not materially adversely affect the
value of the Collateral. Collateral consisting of real property will be
mortgaged by the Company and any applicable Restricted Subsidiaries pursuant to
mortgages or deeds of trust (the "Mortgages"). Collateral constituting personal
property will be pledged by the Company and any applicable Restricted
Subsidiaries pursuant to a security agreement (the "Security Agreement"). The
Working Capital Facility will be secured by a Lien on the Company's inventory,
accounts and general intangibles and other related personal property. The Knox
County Industrial Revenue Bonds are secured by a Lien on the real property,
buildings, improvements and fixtures located at the Company's plant in Knox
County, Tennessee and the Taylor County Industrial Revenue Bonds
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are secured by the real property, plant and equipment located at, and/or used in
connection with, the Company's plant in Taylor County, Florida.
If the Notes become due and payable prior to the final stated maturity
thereof for any reason or are not paid in full at the final stated maturity
thereof and after any applicable grace period has expired, the Trustee has the
right, subject to the Intercreditor Agreement described below, to foreclose upon
the Collateral in accordance with instructions from the Holders of a majority in
aggregate principal amount of the Notes or, in the absence of such instructions,
in such manner as the Trustee deems appropriate in its absolute discretion. The
proceeds received by the Trustee will be applied by the Trustee first to pay the
expenses of such foreclosure and fees and other amounts then payable to the
Trustee under the Indenture and the Security Documents and, thereafter, to pay
all amounts owing to the Holders under the Indenture, the Notes and the Security
Documents (with any remaining proceeds to be payable to the Company or as may
otherwise be required by law).
No appraisals of any portion of the Collateral have been prepared by or on
behalf of the Company. By its nature, some or all of the Collateral will be
illiquid and may have no readily ascertainable market value. Accordingly, there
can be no assurance that the Collateral could be sold, or, if sold, that the
value of the Collateral will be sufficient to repay obligations under the Notes.
Moreover, to the extent saleable, there can be no assurance that the proceeds of
any sale of the Collateral in whole or in part pursuant to the Indenture and
Security Documents following an Event of Default would be sufficient to satisfy
payments due under the Notes. See "Risk Factors -- Limitations on Security
Interests." In addition, the ability of the Trustee (for the benefit of the
Holders) to realize upon the Collateral is subject to the Intercreditor
Agreement and may be subject to certain statutory Liens (including tax,
landlords', warehousemen's, and materialmen's Liens), certain Liens in favor of
holders of purchase money indebtedness and certain bankruptcy law limitations in
the event of a bankruptcy. See "Risk Factors -- Limitations on Security
Interests." The Class A Preferred Stock may in certain instances be exchanged
into Notes. Such exchange would increase the principal amount of Notes
outstanding (up to a maximum of $10.0 million) and in turn would dilute the
collateral coverage of the Notes purchased in the Offering.
The collateral release provisions of the Indenture permit the release of
Collateral without substitution of collateral of equal value under certain
limited circumstances. See "-- Possession, Use and Release of Collateral." As
described under "-- Certain Covenants -- Limitation on Sale of Assets," the Net
Cash Proceeds of certain Asset Sales may under specified circumstances be
required to be utilized to make an offer to purchase Notes. To the extent that
any such offer to purchase Notes is not fully subscribed to by Holders thereof,
the unutilized Net Cash Proceeds may, under certain circumstances, be retained
by the Company free and clear of the Lien of the Indenture and the Security
Documents.
INTERCREDITOR AGREEMENT
On October 14, 1997, the Trustee for itself (and in that capacity) and as
collateral agent on behalf of the holders of the Notes entered into an
intercreditor agreement (the "Intercreditor Agreement") with Congress, which
agreement was acknowledged and agreed to by the Company. The Intercreditor
Agreement provides, among other things, that for a period following the issuance
of a notice of enforcement by the Trustee, Congress may enter upon all or any
portion of the Company's premises, use the Collateral to the extent necessary to
complete the manufacture of inventory, collect accounts and sell or otherwise
generally deal with and dispose of the collateral securing the Indebtedness
under the Working Capital Facility.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, the
Company will be required to offer to repurchase all of the outstanding Notes
pursuant to the offer described below (the "Change of Control Offer"), at a
purchase price equal to 101.0% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of
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the Change of Control Offer. Such notice will state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date") and the procedure which the Holder must follow
to exercise such right. The Change of Control Offer is required to remain open
for at least 20 Business Days or such longer period as may be required by law.
Holders electing to have a Note purchased pursuant to a Change of Control Offer
will be required to surrender the Note, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Note completed, to the paying agent for
the Notes at the address specified in the notice prior to the close of business
on the third Business Day prior to the Change of Control Payment Date.
There can be no assurance that, in the event of a Change of Control, the
Company would have sufficient funds to pay the repurchase price for all Notes
that the Company is required to repurchase. In the event that the Company were
required to repurchase outstanding Notes pursuant to a Change of Control Offer,
the Company expects that it would need to seek third-party financing to the
extent it does not have available funds to meet its repurchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to the Company's obligation to make a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
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 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 repurchase. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances, make
more difficult or discourage any leveraged buyout of the Company by the
management of the Company. While such restrictions cover a wide 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.
The Company will comply with the requirements of 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 Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Indebtedness
(a) The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness,
including, without limitation, any Acquired Indebtedness; provided, however,
that the foregoing will not prohibit (i) the Company from Incurring Permitted
Indebtedness and (ii) any Restricted Subsidiary from Incurring Indebtedness
pursuant to clauses (vi), (vii), and (viii) of the definition of Permitted
Indebtedness.
(b) Notwithstanding the foregoing limitations, (A) the Company may Incur
Indebtedness (including, without limitation, Acquired Indebtedness) if: (i) no
Default or Event of Default shall have occurred and be continuing on the date of
the proposed Incurrence thereof or would result as a consequence of such
proposed Incurrence and; (ii) immediately before and immediately after giving
effect to such proposed Incurrence, the Consolidated Fixed Charge Coverage Ratio
of the Company is at least equal to 2.0:1.0 and (B) after January 1, 1999, the
Company may issue additional Notes in exchange for the Class A Preferred Stock
if
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(i) no Default or Event of Default shall have occurred and be continuing on the
date of the proposed issuance thereof or would result as a consequence of such
proposed issuance and (ii) immediately before and immediately after giving
effect to such proposed issuance, the Consolidated Fixed Charge Coverage Ratio
of the Company is at least equal to 2.25:1.0; provided, however, that (I) the
aggregate principal amount of such additional Notes issued in all such exchanges
may not exceed $10.0 million, (II) at the time of issuance of any additional
Notes, the Company shall have delivered to the Trustee a certificate of an
Independent Financial Advisor certifying the Fixed Charge Coverage Ratio, (III)
any such issuance of additional Notes shall be in a minimum principal amount of
$1.0 million and (IV) no more than one such exchange may be effected in any
fiscal quarter.
(c) The Company will not, directly or indirectly, in any event Incur any
Indebtedness which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated to any other Indebtedness of the Company unless
such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Notes to the same
extent and in the same manner as such Indebtedness is subordinated pursuant to
subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company.
Limitation on Restricted Payments
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make
any distribution (other than dividends or distributions payable solely in
Qualified Capital Stock of the Company or through increases in the liquidation
preferences on such Qualified Capital Stock) on shares of the Company's Capital
Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Company, or any warrants,
rights or options to acquire shares of any class of such Capital Stock, other
than through the exchange therefor solely of Qualified Capital Stock of the
Company or warrants, rights or options to acquire Qualified Capital Stock of the
Company, (c) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company that is subordinate or junior in right of payment to
the Notes or (d) make any Investment (other than Permitted Investments) in any
Person (each of the foregoing prohibited actions set forth in clauses (a), (b),
(c) and (d) being referred to as a "Restricted Payment"), if at the time of such
proposed Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default has occurred and is continuing or would result
therefrom, or (ii) the Company is not able to Incur at least $1.00 of additional
Indebtedness in accordance with the Consolidated Fixed Charge Coverage Ratio
test of paragraph (b) of "-- Limitation on Indebtedness" above (as if such
Restricted Payment had been made as of the first day of the Four Quarter
Period), or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined reasonably and in good faith by the board of
directors of the Company) exceeds or would exceed the sum of: (A) 50.0% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100.0% of such loss) of the Company during the period
(treating such period as a single accounting period) earned after the Issue Date
and on or prior to the last day of the last fiscal quarter preceding the date of
the proposed Restricted Payment (the "Reference Date"); plus (B) 100.0% of the
aggregate net cash proceeds received by the Company from any Person (other than
a Restricted Subsidiary of the Company) from the issuance and sale subsequent to
the Issue Date and on or prior to the Reference Date of Qualified Capital Stock
of the Company; plus (C) without duplication of any amounts included in clause
(iii)(B) above, 100.0% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock; plus (D) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, interest payments,
repayments of loans or advances, or other transfers of cash, in each case to the
Company or to any Restricted Subsidiary of the Company from Unrestricted
Subsidiaries (but without duplication of any such amount included in calculating
cumulative Consolidated Net Income of the Company), or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (in each case valued as
provided in "-- Limitation on Designation of Unrestricted Subsidiaries" below),
not to exceed, in the case of any Unrestricted Subsidiary, the
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amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary and which was treated as a Restricted
Payment under the Indenture; plus (E) without duplication of the immediately
preceding subclause (D), an amount equal to the lesser of the cost or net cash
proceeds received upon the sale or other disposition of any Investment made
after the Issue Date which had been treated as a Restricted Payment (but without
duplication of any such amount included in calculating cumulative Consolidated
Net Income of the Company); plus (F) $1.0 million.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend or
redemption payment within 60 days after the date of declaration of such dividend
or the applicable redemption if the dividend or redemption payment, as the case
may be, would have been permitted on the date of declaration; (2) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any shares of Capital Stock of the Company through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Restricted
Subsidiary of the Company) of shares of Qualified Capital Stock of the Company
or warrants, options or rights to acquire Qualified Capital Stock; (3) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes, either (A) solely in exchange for (I) shares of
Qualified Capital Stock of the Company or (II) Indebtedness of the Company which
has a Weighted Average Life to Maturity that is greater than the Weighted
Average Life to Maturity of the Indebtedness being acquired and is subordinate
to the Notes at least to the same extent and in the same manner as the
Indebtedness being acquired, or (B) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Restricted Subsidiary of
the Company) of (I) shares of Qualified Capital Stock of the Company or (II)
Refinancing Indebtedness; (4) the issuance of additional Class A Preferred Stock
as dividends on the Class A Preferred Stock or an increase in the liquidation
preference thereon; and (5) the issuance of additional Notes in exchange for
Class A Preferred Stock to the extent permitted under clause (b)(B) under the
"Limitation on Indebtedness" covenant. In determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date in accordance with clause
(iii) of the immediately preceding paragraph, amounts expended pursuant to
clauses (1), (2) and (5) shall be included in such calculation.
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 complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Sale of Assets
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, consummate any Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, 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 in such Asset Sale; (ii) at least 80.0% of
the consideration received by the Company or such Restricted Subsidiary, as the
case may be, from such Asset Sale shall be in the form of cash or Cash
Equivalents and is received at the time of such disposition; (iii) if such Asset
Sale involves Collateral, (x) such Asset Sale is not between the Company and any
of its Subsidiaries or between Subsidiaries of the Company and (y) the Company
shall cause the cash consideration received in respect thereof to be deposited
in the Collateral Account as and when received by the Company or by any
Subsidiary of the Company and shall otherwise be in compliance with the
provisions described under "-- Possession, Use and Release of Collateral --
Release of Collateral," and (iv) the Company or such Restricted Subsidiary shall
apply the Net Cash Proceeds of such Asset Sale within 270 days of receipt
thereof, as follows:
(a) first, to the extent such Net Cash Proceeds are received from an
Asset Sale not involving the sale, transfer or disposition of Collateral
("Non-Collateral Proceeds"), to repay any Indebtedness secured by the
assets involved in such Asset Sale or otherwise required to be repaid with
the proceeds thereof; provided that in the event any Net Cash Proceeds
received in respect thereof are used to repay indebtedness outstanding
under any revolving credit or other working capital type facilities (but
excluding the Working Capital Facility which does not have to be
permanently reduced) such facility is permanently reduced by the amounts
thereof;
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(b) second, with respect to any Non-Collateral Proceeds remaining
after application pursuant to the preceding paragraph (a) and any Net Cash
Proceeds received from an Asset Sale involving Collateral ("Collateral
Proceeds" and, together with such remaining Non-Collateral Proceeds, the
"Available Proceeds Amount"), the Company shall make an offer to purchase
(the "Asset Sale Offer") from all Holders, up to a maximum principal amount
(expressed as an integral multiple of $1,000) of Notes equal to the
Available Proceeds Amount at a purchase price equal to 100.0% of the
principal amount thereof plus accrued and unpaid interest thereon, if any,
to the date of purchase; provided that the Company will not be required to
apply pursuant to this paragraph (b) Net Cash Proceeds received from any
Asset Sale if, and only to the extent that, such Net Cash Proceeds are
applied to a Related Business Investment (other than an investment in
inventory or other property not constituting Collateral or a category of
Collateral), within 270 days of such Asset Sale and the property and assets
so acquired are made subject to the Lien of the Indenture and the
applicable Security Documents pursuant to the provisions thereof; provided,
that, any Non-Collateral Proceeds including the Available Proceeds Amount,
may be invested in inventory or other property not constituting Collateral
(or a category of Collateral) and any property so acquired need not be made
subject to the Lien under the Indenture. If at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, 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 Cash Proceeds thereof shall be applied in accordance with this
"Limitation on Sale of Assets" covenant. The Company may defer the Asset
Sale Offer until there is an aggregate unutilized Available Proceeds Amount
equal to or in excess of $3.5 million resulting from one or more Asset
Sales (at which time, the entire unutilized Available Proceeds Amount, and
not just the amount in excess of $3.5 million, shall be applied as required
pursuant to this paragraph). To the extent the Asset Sale Offer is not
fully subscribed to by Holders, the Company may obtain a release of the
unutilized portion of the Available Proceeds Amount from the Lien of the
Security Documents; and
(c) all Net Proceeds and all Net Awards required to be delivered to
the Trustee pursuant to any Security Document shall constitute Trust Moneys
and shall, to the extent received by the Company, be delivered by the
Company to the Trustee contemporaneously with receipt by the Company and be
deposited in the Collateral Account. Net Proceeds and Net Awards so
deposited that are required to be applied or may be applied by the Company
to effect a Restoration of the affected Collateral under the applicable
Security Document may be withdrawn from the Collateral Account under the
Indenture, only in accordance with the Indenture. Net Proceeds and Net
Awards so deposited that are not required to be applied to effect a
Restoration of the affected Collateral under the applicable Security
Document may only be withdrawn in accordance with the Indenture. See "--
Use of Trust Moneys." All Collateral Proceeds shall constitute Trust
Moneys and shall be delivered by the Company to the Trustee and shall be
deposited in the Collateral Account in accordance with the Indenture.
Collateral Proceeds so deposited may be withdrawn from the Collateral
Account pursuant to the Indenture as summarized in "-- Use of Trust
Moneys."
Notice of an Asset Sale Offer will be mailed to the Holders as shown on the
register of Holders not less than 30 days nor more than 60 days before the
payment date for the Asset Sale Offer, with a copy to the Trustee, and shall
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Asset Sale Offer, Holders may elect to tender their Notes in whole or in
part in integral multiples of $1,000 principal amount at maturity in exchange
for cash. To the extent Holders properly tender Notes in an amount exceeding the
Available Proceeds Amount, Notes of tendering Holders will be repurchased on a
pro rata basis (based on amounts tendered). An Asset Sale Offer shall remain
open for a period of 20 Business Days or such longer periods as may be required
by law.
The Company will comply with the requirements of 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 Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall
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comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on its Capital Stock; (b) make loans or advances or pay any
Indebtedness or other obligation owed to the Company or to any other Restricted
Subsidiary; (c) guarantee any Indebtedness or any other obligation of the
Company or any Restricted Subsidiary; or (d) transfer any of its property or
assets to the Company or to any other Restricted Subsidiary of the Company (each
such encumbrance or restriction, a "Payment Restriction"), except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Indenture and the Security Documents; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to such
Restricted Subsidiary, or the properties or assets of such Restricted
Subsidiary, other than the Person or the properties or assets of the Person so
acquired; (5) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date; (6) customary
restrictions with respect to a Restricted Subsidiary of the Company pursuant to
an agreement that has been entered into for the sale or disposition of Capital
Stock or assets of such Restricted Subsidiary to be consummated in accordance
with the terms of the Indenture solely in respect of the assets or Capital Stock
to be sold or disposed of; (7) any instrument governing a Permitted Lien, to the
extent and only to the extent such instrument restricts the transfer or other
disposition of assets subject to such Permitted Lien; or (8) an agreement
governing Refinancing Indebtedness incurred to Refinance the Indebtedness
issued, assumed or incurred pursuant to an agreement referred to in clause (2),
(4) or (5) above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any such Refinancing Indebtedness are no
less favorable to the Holders in any material respect as determined by the Board
of Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in the
applicable agreement referred to in such clause (2), (4) or (5).
Limitation on Liens
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist or remain in effect any Liens (i) upon any item of Collateral
other than the Liens granted to the Trustee (for the benefit of the Holders)
pursuant to the Indenture and the Security Documents and the other Liens
expressly permitted by the applicable Security Documents and (ii) upon any other
properties or assets of the Company or of any of its Restricted Subsidiaries
whether owned on the Issue Date or acquired after the Issue Date, or on any
proceeds therefrom, or assign or otherwise convey any right to receive income or
profits thereon other than, with respect to this clause (ii), (A) Liens existing
on the Issue Date to the extent and in the manner such Liens are in effect on
the Issue Date and (B) Permitted Liens.
Merger, Consolidation and Sale of Assets
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless: (i) either (1)
the Company shall be the surviving or continuing corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance, transfer or lease
the properties and assets of the Company and of the Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
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supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture, the Security
Documents and the Registration Rights Agreement on the part of the Company to be
performed or observed and the Company shall have taken all steps necessary or
reasonably requested by the Trustee to protect and perfect the security
interests granted or purported to be granted under the Security Documents; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness Incurred or anticipated to be Incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (i) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (ii) shall be able to Incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio
test of paragraph (b) of "-- Limitation on Indebtedness"; provided that in
determining the "Consolidated Fixed Charge Coverage Ratio" of the resulting
transferee or surviving Person, such ratio shall be calculated as if the
transaction (including the Incurrence of any Indebtedness or Acquired
Indebtedness) took place on the first day of the Four Quarter Period; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness Incurred
or anticipated to be Incurred and any Lien granted in connection with or in
respect of the transaction) no Default and no Event of Default shall have
occurred or be continuing; and (iv) the Company or the Surviving Entity shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, transfer or
lease and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with the applicable provisions
of the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied; provided, however, that such counsel may
rely, as to matters of fact, on a certificate or certificates of officers of the
Company.
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 Restricted
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.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, lease or
transfer is made will succeed to, and be substituted for, and may exercise every
right and power of, the Company under the Indenture with the same effect as if
such successor had been named as the Company therein, and thereafter (except in
the case of a sale, assignment, transfer, lease, conveyance or other
disposition) the predecessor corporation will be relieved of all further
obligations and covenants under the Indenture, the Notes and the Security
Documents.
Impairment of Security Interest
Neither the Company nor any of its Subsidiaries will take or omit to take
any action which action or omission would have the result of impairing the
security interest in the Collateral granted to the Trustee, for its benefit and
for the benefit of the Holders, and the Company shall not grant to any Person,
or suffer any Person to have (other than to the Trustee for the benefit of the
Trustee and the Holders) any interest whatsoever in the Collateral, except as
otherwise permitted by the Indenture and by the Security Documents. Neither the
Company nor any of its Subsidiaries will enter into any agreement or instrument
that by its terms requires the proceeds received from any sale of Collateral to
be applied to repay, redeem, defease or otherwise acquire or retire any
Indebtedness of any Person, other than Permitted Liens pursuant to the
Indenture, the Notes and the Security Documents.
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Limitation on Transactions with Affiliates
(a) The Company will not, and will not cause or permit any Restricted
Subsidiary to, conduct any business or enter into any transaction or series of
transactions with or for the benefit of any of their Affiliates (each an
"Affiliate Transaction"), except in good faith and on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those that
could have been obtained in a comparable transaction on an arms'-length basis
from a Person not an Affiliate of the Company or such Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $1.0 million shall be approved by the
Board of Directors of the Company, such approval to be evidenced by a Board
Resolution stating that such board of directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Subsidiary of the Company enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $5.0 million, the Company or such
Subsidiary shall, prior to the consummation thereof, obtain a favorable opinion
as to the fairness of such transaction or series of related transactions to the
Company or the relevant Subsidiary, as the case may be, from a financial point
of view, from an Independent Financial Advisor and file the same with the
Trustee.
(b) The foregoing restrictions shall not apply to (i) reasonable fees and
compensation paid to and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Subsidiary as determined in good
faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned
Restricted Subsidiaries, provided such transactions are not otherwise prohibited
by the Indenture; (iii) Restricted Payments permitted by the Indenture; (iv)
payments made under the Tax Sharing Agreement as in effect on the Issue Date or
any amendment thereto or replacement agreement thereto so long as any such
amendment or replacement is no less favorable to Holders than the original
agreement as in effect on the Issue Date; and (v) management fees payable to
Affiliates of the Company not to exceed $200,000 per annum in the aggregate.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, enter into any Sale and Leaseback Transaction. Notwithstanding
the foregoing, the Company may enter into a Sale and Leaseback Transaction
involving only the sale or transfer of assets acquired after the Issue Date and
not constituting Collateral if: (i) after giving pro forma effect to any such
Sale and Leaseback Transaction, the aggregate amount of Attributable Debt for
all Sale and Leaseback Transactions effected pursuant to this covenant is less
than $5.0 million; (ii) the net proceeds of such Sale and Leaseback Transaction
are at least equal to the fair market value of such property (as determined by
the Company's Board of Directors); (iii) the aggregate rent payable (exclusive
of the interest component thereof) 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 (as determined
by the Company's Board of Directors); and (iv) the Company shall apply the Net
Cash Proceeds of the sale as provided under "-- Limitation on Sale of Assets"
above, in the manner provided by the provisions of such covenant.
Limitation on Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that (i) any such redesignation shall be deemed to be an incurrence as
of the date of such redesignation by the Company and its Restricted Subsidiaries
of the Indebtedness (if any) of such redesignated Subsidiary for purposes of "--
Limitation on Indebtedness" above and (ii) unless such redesignated Subsidiary
shall not have any Indebtedness outstanding, other than Indebtedness which would
be Permitted Indebtedness, no such designation shall be permitted if immediately
after giving effect to such redesignation and the incurrence of any such
additional Indebtedness the Company could not incur $1.00 of
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additional Indebtedness (other than Permitted Indebtedness) pursuant to "--
Limitation on Indebtedness" above.
The Board of Directors of the Company also may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if (i) such
designation is at that time permitted under "-- Limitation on Restricted
Payments" above and (ii) immediately after giving effect to such designation,
the Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to "-- Limitation on Indebtedness" above. Any such
designation by the Board of Directors shall be evidenced to the Trustee by the
filing with the Trustee of a certified copy of the resolution of the Board of
Directors giving effect to such designation or redesignation and an Officers'
Certificate certifying that such designation or redesignation complied with the
foregoing conditions and setting forth in reasonable detail the underlying
calculations.
For purposes of the covenant described under "-- Limitation on Restricted
Payments" above, (i) an "Investment" shall be deemed to have been made at the
time any Restricted Subsidiary is designated as an Unrestricted Subsidiary in an
amount (proportionate to the Company's equity interest in such Subsidiary) equal
to the net worth of such Restricted Subsidiary at the time that such Restricted
Subsidiary is designated as an Unrestricted Subsidiary; (ii) at any date the
aggregate amount of all Restricted Payments made as Investments since the Issue
Date shall exclude and be reduced by an amount (proportionate to the Company's
equity interest in such Subsidiary) equal to the net worth of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary, not to exceed, in the case of any such redesignation of
an Unrestricted Subsidiary as a Restricted Subsidiary, the amount of Investments
previously made by the Company and its Restricted Subsidiaries in such
Unrestricted Subsidiary (in each case (i) and (ii) "net worth" to be calculated
based upon the fair market value of the assets of such Subsidiary as of any such
date of designation); and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
Notwithstanding the foregoing, the Board of Directors may not designate any
Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any Restricted Subsidiary (i) provides credit
support for, or a guarantee of, any Indebtedness of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (ii)
is directly or indirectly liable for any Indebtedness of such Subsidiary or (b)
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any Restricted Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
Subsidiaries of the Company that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. Notwithstanding any provisions of this covenant, all
Subsidiaries of an Unrestricted Subsidiary will be Unrestricted Subsidiaries.
Limitation on Guarantees by Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
Incur, assume, guarantee or in any other manner become liable with respect to
any Indebtedness, unless, in any such case (a) such Restricted Subsidiary
executes and delivers a supplemental indenture to the Indenture, providing a
guarantee of payment of the Notes by such Restricted Subsidiary (the
"Guarantee") and (b) if such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Indebtedness that is expressly
subordinated to the Notes, the guarantee or other instrument provided by such
Restricted Subsidiary in respect of such subordinated Indebtedness shall be
subordinated to the Guarantee pursuant to subordination provisions no less
favorable in all material respects to the Holders of the Notes than those
contained in the Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was executed
and delivered pursuant to the preceding paragraph; (ii) any sale or other
disposition (by merger or
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otherwise) to any Person which is not a Restricted Subsidiary of the Company, of
all of the Company's Capital Stock in, or all or substantially all of the assets
of, such Restricted Subsidiary; provided that (a) such sale or disposition of
such Capital Stock or assets is otherwise in compliance with the terms of the
Indenture and (b) such assumption, guarantee or other liability of such
Restricted Subsidiary has been released by the holders of the other Indebtedness
so guaranteed; or (iii) the redesignation of such Restricted Subsidiary as an
Unrestricted Subsidiary in compliance with the terms of the Indenture.
Limitation on Amendments to Certain Documents
The Company will not amend, supplement or modify any documents governing
the terms of the Class A Preferred Stock unless any such amendment, supplement
or modification is no less favorable to the Holders than the terms thereof on
the Issue Date.
Reports to Holders
The Company will deliver to the Trustee within 15 days after the filing of
the same with the Commission, copies of the quarterly and annual reports and of
the information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of 314(a) of the TIA.
Conduct of Business
The Company and its Restricted Subsidiaries will not engage in any business
which is not the same as or reasonably similar, ancillary or related to, or a
reasonable extension, development or expansion of, the businesses in which the
Company is engaged on the Issue Date.
Events of Default
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest (including any Additional Interest) on
any Note for a period of 30 days or more after such interest becomes due
and payable; or
(ii) the failure to pay the principal on any Note, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or an Asset Sale Offer); or
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture or any Security Document which
default continues for a period of 60 days after the Company receives
written notice specifying the default from the Trustee or from Holders of
at least 25.0% in principal amount of outstanding Notes (except in the case
of a default with respect to the "Change of Control," "Limitation on Asset
Sales" or "Merger, Consolidation and Sale of Assets" covenants, which will
constitute Events of Default with notice but without passage of time); or
(iv) (A) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary of the Company
(or the payment of which is guaranteed by the Company or any Restricted
Subsidiary of the Company), whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, which default (a) is caused by
a failure to pay at final maturity the principal of or premium, if any, on
such Indebtedness after any applicable grace period provided in such
Indebtedness on the date of such default (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
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principal amount of any other such Indebtedness under which there has been
a payment default or the maturity of which has been so accelerated,
aggregates at least $3.0 million; or
(v) one or more judgments in an aggregate amount in excess of $3.0
million (which are not covered by third-party insurance as to which the
insurer has not disclaimed coverage) being rendered against the Company or
any of its Material Subsidiaries and such judgments remain undischarged, or
unstayed or unsatisfied for a period of 60 days after such judgment or
judgments become final and non-appealable; or
(vi) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any of its Material Subsidiaries; or
(vii) any Guarantee executed and delivered by a Restricted Subsidiary
providing a guarantee of the payment and performance of the Company's
obligations under the Indenture and the Notes ceases to be in full force
and effect (other than in accordance with its terms) or any of the Security
Documents cease to be in full force and effect (other than in accordance
with their respective terms), or any of the Security Documents cease to
give the Trustee the Liens, rights, powers and privileges purported to be
created thereby, or any such Guarantee or Security Document is declared
null and void, or the Company denies any of its obligations under any such
Guarantee or Security Document.
If an Event of Default (other than an Event of Default specified in clause
(vi) above relating to the Company) occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25.0% in aggregate
principal amount of the then outstanding Notes may declare the unpaid principal
of, premium, if any, and accrued and unpaid interest on, all the Notes then
outstanding to be due and payable, by notice in writing to the Company (and to
the Trustee, if given by Holders) and upon such declaration such principal
amount, premium, if any, and accrued and unpaid interest will become immediately
due and payable. If an Event of Default specified in clause (vi) above relating
to the Company occurs, all unpaid principal of, and premium, if any, and accrued
and unpaid interest on, the Notes then outstanding will ipso facto become due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (a) if the rescission would not
conflict with any judgment or decree, (b) if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of such acceleration, (c) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (d) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (e) in the event of the cure or waiver of an
Event of Default of the type described in clause (f) of the description of
Events of Default above, the Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has been cured
or waived; provided, however, that such counsel may rely, as to matters of fact,
on a certificate or certificates of officers of the Company. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
The Indenture provides that, at any time prior to the declaration of
acceleration of the Notes, the Holders of a majority in principal amount of the
Notes may waive any existing Default or Event of Default under the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any Notes.
The Indenture provides that, Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture and under the TIA.
During the existence of an Event of Default, the Trustee is required to exercise
such rights and powers vested in it under the Indenture and use the same degree
of care and skill in its exercise thereof as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs. Subject to the
provisions of the Indenture relating to the duties of the Trustee, whether or
not an Event of Default shall occur and be continuing, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the
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right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance.") Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of Holders of the Notes to receive payments in
respect of the principal of, premium, if any, and interest on the Notes when
such payments are due, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payments,
(iii) the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith and (iv) 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 non-payment, bankruptcy,
receivership, reorganization 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, non-callable 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 on the Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be; (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 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; provided, however, such opinion of
counsel shall not be required if all the Notes will become due and payable on
the maturity date within one year or are to be called for redemption within one
year under arrangements satisfactory to the trustee; (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 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 with respect to the
Indenture resulting from the Incurrence of Indebtedness, all or a portion of
which will be used to defease the notes concurrently with such Incurrence) or
insofar as Events of Default from bankruptcy or insolvency events are concerned,
at any time in the period ending on the 91st day after the date of deposit; (v)
such Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other material
agreement or instrument to which the Company or any of its Restricted
Subsidiaries is a party or by which the Company or any of its Restricted
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
defeating,
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hindering, delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent provided
for or relating to the Legal Defeasance or the Covenant Defeasance have been
complied with; provided, however, that such counsel may rely, as to matters of
fact, on a certificate or certificates of officers of the Company; (viii) the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that (A) the trust funds will not be subject to any rights of holders of
Indebtedness of the Company other than the Notes and (B) assuming no intervening
bankruptcy of the Company between the date of deposit and the 91st day following
the deposit and that no Holder of the Notes is an insider of the Company, after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; provided, however, that such counsel may
rely, as to matters of fact, on a certificate or certificates of officers of the
Company; and (ix) certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Company will have the right to remain in possession and retain exclusive control
of the Collateral securing the Notes (other than any cash, securities,
obligations and Cash Equivalents constituting part of the Collateral and
deposited or required to be deposited with the Trustee and other than as set
forth in the Security Documents), to freely operate the Collateral and to
collect, invest and dispose of any income therefrom.
Release of Collateral
The Company will have the right to sell, exchange or otherwise dispose of
any of the Collateral (other than Trust Moneys (but other than Trust Moneys
constituting Collateral Proceeds), which Trust Moneys are subject to release
from the Lien of the Security Documents as provided under "Use of Trust Moneys"
below) (a "Release Transaction"), upon compliance with the requirements and
conditions of the provisions described below, and the Trustee shall release the
same from the Lien of the Security Documents upon receipt by the Trustee (other
than in the case of paragraph (d) below) of a notice requesting such release and
describing the property to be so released, together with delivery of the
following, among other matters:
(a) If the property to be released has a net book value of at least
$5.0 million, a Board Resolution of the Company requesting such release and
authorizing an application to the Trustee therefor.
(b) An Officers' Certificate of the Company dated not more than 30
days prior to the date of the application for such release, and signed
also, in the case of the following clauses (ii) and (iv), by an
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Appraiser or, if such property consists of securities, by a Financial
Advisor, in each case stating in substance as to certain matters, including
the following: (i) that, in the opinion of the signers, the security
afforded by the Security Documents will not be impaired by such release in
contravention of the provisions of the Indenture, and that either (1) the
Collateral to be released is not Collateral Proceeds and is not being
replaced by comparable property, has a net book value of less than $750,000
and is not necessary for the efficient operation of the Company's and its
Subsidiaries' remaining property or in the conduct of the business of the
Company and its Subsidiaries as conducted immediately prior thereto or (2)
the Collateral to be released is Trust Moneys representing Collateral
Proceeds that are not required, or cannot possibly be required through the
passage of time or otherwise, to be used to purchase Notes under the
"Limitation on Asset Sales" covenant or (3) the Collateral to be released
is being released in connection with an Asset Sale of such Collateral and
the net proceeds (as defined in paragraph (d) below) from such Asset Sale
are being delivered to the Trustee (if required by the covenant "Limitation
on Asset Sales") in accordance with, and to the extent required by, the
provisions of paragraph (d) below; (ii) except in the case of a release
referred to in the preceding paragraph (b)(i)(2), that the Company has
either disposed of or will dispose of the Collateral so to be released in
compliance with all applicable terms of the Indenture and for a
consideration representing, in the opinion of the signers, its fair value,
which consideration may, subject to any other provisions of the Indenture,
consist of any one or more of the following: (A) cash or Cash Equivalents,
(B) obligations secured by a purchase money Lien upon the property so to be
released and (C) any other property or assets that, upon acquisition
thereof by the Company, would be subject to the Lien of the Security
Documents (except as provided in paragraph (d) below), and subject to no
Lien other than certain Liens which, under the applicable provisions of the
Security Documents relating thereto, are permitted to be superior to the
Lien of the Trustee therein, all of such consideration to be briefly
described in the certificate; (iii) that no Event of Default has occurred
and is continuing; (iv) the fair value, in the opinion of the signers, of
the property to be released at the date of such application for release;
provided that it shall not be necessary under this clause (iv) to state the
fair value of any property whose fair value is certified in a certificate
of an Independent Appraiser or Independent Financial Advisor under
paragraph (c) below; and (v) that all conditions precedent in the Indenture
and the Security Documents relating to the release of the Collateral in
question have been complied with.
(c) If (i) the fair value of the property to be released and of all
other property released from the Lien of the Security Documents since the
commencement of the then current calendar year is 10 percent or more of the
aggregate principal amount of the Notes outstanding on the date of the
application and (ii) the fair value of the Collateral to be so released is
at least $250,000 and at least 1 percent of the aggregate principal amount
of the Notes outstanding on the date of the application, a certificate of
an Independent Appraiser, or if such property consists of securities, a
certificate of an Independent Financial Advisor stating (1) the then fair
value, in the opinion of the signer, of the property to be released; and
(2) that such release, in the opinion of the signer, will not impair the
security interests under any of the Security Documents in contravention of
their terms.
(d) The net proceeds (excluding any Collateral Proceeds which are not
required, or cannot be required through the passage of time or otherwise,
to be used to purchase or redeem Notes under the covenant described under
"Limitation on Asset Sales" above) or, if the Collateral so to be released
is subject to a prior Lien permitted under the Security Documents, a
certificate of the trustee, mortgagee or other holder of such prior Lien
that it has received such net proceeds and has been irrevocably authorized
by the Company to pay over to the Trustee any balance of such net proceeds
remaining after the discharge of such Indebtedness secured by such prior
Lien; and, if any property other than cash, Cash Equivalents or obligations
is included in such net proceeds, such instruments of conveyance,
assignment and transfer, if any, as may be necessary, in the Opinion of
Counsel, to subject to the Lien of the Security Documents all the right,
title and interest of the Company or the relevant Guarantor in and to such
property. For purposes of this paragraph (d), "net proceeds" shall mean any
cash, Cash Equivalents, obligations or other property received on the sale,
transfer, exchange or other disposition of Collateral to be released, less
a proportionate share of (i) brokerage commissions and other reasonable
fees and
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expenses related to such transaction and (ii) any provision for Federal,
state or local taxes payable as a result of such sale, transfer, exchange
or other disposition.
(e) One or more Opinions of Counsel which, when considered
collectively, shall be substantially to the effect (i) that any obligation
included in the consideration for any property so to be released and to be
received by the Trustee pursuant to paragraph (d) above is a valid and
binding obligation enforceable in accordance with its terms, subject to
such customary exceptions regarding equitable principles, creditors' rights
generally and bankruptcy as shall be reasonably acceptable to the Trustee
in its sole judgment, and is effectively pledged under the Security
Documents, (ii) that any Lien granted by a purchaser to secure a purchase
money obligation is a fully perfected first priority Lien to the extent
obtainable by filing or possession and such instrument granting such Lien
is enforceable in accordance with its terms, (iii) either (x) that such
instruments of conveyance, assignment and transfer as have been or are then
delivered to the Trustee are sufficient to subject to the Lien of the
Security Documents all the right, title and interest of the Company in and
to any property, other than cash, Cash Equivalents and obligations, that is
included in the consideration for the Collateral so to be released and to
be received by the Trustee pursuant to paragraph (d) above, subject to no
Lien other than Liens permitted on Collateral by the covenant described
under "Limitation on Liens" above, or (y) that no instruments of
conveyance, assignment or transfer are necessary for such purpose, (iv)
that the Company has corporate power to own all property included in the
consideration for such release, (v) in case any part of the money or
obligations referred to in paragraph (d) above has been deposited with a
trustee or other holder of any prior Lien permitted by the Security
Documents, that the Collateral to be released, or a specified portion
thereof, is or immediately before such release was subject to such prior
Lien and that such deposit is required by such prior Lien and (vi) that all
conditions precedent provided in the Indenture and the Security Documents
relating to the release of the Collateral have been complied with.
Notwithstanding the foregoing, the Company may obtain a release of
Available Amounts required to purchase Notes pursuant to an Asset Sale Offer on
an Asset Sale Payment Date by directing the Trustee in writing to cause to be
applied such Available Amounts to such purchase in accordance with the covenant
described under "Disposition of Proceeds of Asset Sales" above.
In case an Event of Default shall have occurred and be continuing, the
Company, while in possession of the Collateral (other than cash, Cash
Equivalents and other personal property held by, or required to be deposited or
pledged with, the Trustee under the Indenture or under any Security Document or
with the trustee, mortgagee or other holder of a prior Lien permitted under the
Security Documents), may do any of the things enumerated in these "Release of
Collateral" provisions only if the Trustee, in its discretion, or the holders of
a majority in aggregate principal amount of the outstanding Notes shall consent
to such action, in which event any certificate filed under these "Release of
Collateral" provisions, shall omit the statement to the effect that no Event of
Default has occurred and is continuing.
All cash or Cash Equivalents received by the Trustee pursuant to the
provisions described under "Release of Collateral" will be held by the Trustee
as Trust Moneys under the Indenture subject to application as provided in
"Release of Collateral" (in the case of any Net Cash Proceeds from Asset Sales)
or in "Use of Trust Moneys" below. All purchase money and other obligations
received by the Trustee pursuant to these "Release of Collateral" provisions
shall be held by the Trustee.
Any releases of Collateral made in strict compliance with these "Release of
Collateral" provisions shall be deemed not to impair the security interests
created by the Security Documents in favor of the Trustee, for the benefit of
the Holders, in contravention of the provisions of the Indenture. The above
provisions shall also apply to the Restricted Subsidiaries with respect to any
Collateral pledged by such Restricted Subsidiaries.
Disposition of Collateral Without Release
Notwithstanding the provisions of "-- Release of Collateral" above, so long
as no Event of Default shall have occurred and be continuing, the Company may,
without any release or consent by the Trustee, do any number of ordinary course
activities in respect of the Collateral, in limited dollar amounts specified by
the TIA, upon satisfaction of certain conditions. For example, among other
things, subject to such dollar
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limitations and conditions, the Company would be permitted to sell or otherwise
dispose of any property subject to the Lien of the Indenture and the Security
Documents, which may have become worn out or obsolete; abandon, terminate,
cancel, release or make alterations in or substitutions of any leases or
contracts subject to the Lien of the Indenture or any of the Security Documents;
surrender or modify any franchise, license or permit subject to the Lien of the
Indenture or any of the Security Documents which it may own or under which it
may be operating; alter, repair, replace, change the location or position of and
add to its structures, machinery, systems, equipment, fixtures and
appurtenances; demolish, dismantle, tear down or scrap any Collateral or abandon
any thereof; grant a non-exclusive license of any intellectual property; abandon
intellectual property under certain circumstances; and grant leases in respect
of real property under certain circumstances.
The above provisions shall also apply to the Restricted Subsidiaries with
respect to any Collateral pledged by such Restricted Subsidiaries.
USE OF TRUST MONEYS
All Trust Moneys (including, without limitation, all Collateral Proceeds)
shall be held by the Trustee as a part of the Collateral securing the Notes and,
so long as no Event of Default shall have occurred and be continuing, may either
(i) be released in accordance with "Possession, Use and Release of Collateral --
Release of Collateral" above if such Trust Moneys represent Collateral Proceeds
in respect of an Asset Sale or (ii) at the direction of the Company be applied
by the Trustee from time to time to the payment of the principal of (at a
purchase price equal to 100.0% of the principal amount of the relevant Notes)
and interest on any Notes at maturity or upon redemption or to the purchase of
Notes upon tender or in the open market or at private sale or upon any exchange
or in any one or more of such ways, in each case in compliance with the
Indenture. The Company may also withdraw Trust Moneys constituting the proceeds
of insurance upon any part of the Collateral or an award for any Collateral
taken by eminent domain to reimburse the Company for repair or replacement of
such Collateral, subject to certain conditions.
The Trustee shall be entitled to apply any Trust Moneys to the cure of any
Default or Event of Default under the Indenture. Trust Moneys deposited with the
Trustee shall be invested in Cash Equivalents pursuant to the direction of the
Company and, so long as no Event of Default shall have occurred and be
continuing, the Company shall be entitled to any interest or dividends accrued,
earned or paid on such Cash Equivalents.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the
Holders. In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an Opinion of Counsel. Other modifications and amendments
of the Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding Notes issued under the Indenture,
except that, without the consent of each Holder of the Notes affected thereby,
no amendment may, directly or indirectly: (i) reduce the amount of Notes whose
Holders must consent to an amendment; (ii) reduce the rate of or change the time
for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change the fixed maturity of any Notes, or change the
date on which any Notes may be subject to redemption or repurchase, or reduce
the redemption or repurchase price therefor; (iv) make any Notes payable in
money other than that stated in the Notes; (v) make any change in provisions of
the Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of the Notes to waive Defaults or Events of Default; (vi)
amend, modify or change the obligation of the Company to make or consummate a
Change of Control Offer (including the definition of Change of Control), or,
after the Company's obligation to purchase the Notes arises thereunder, an Asset
Sale Offer or waive any default in the performance thereof or modify any of the
provisions or definitions with respect to any Asset Sale Offer; (vii) adversely
affect the ranking of Notes; or (viii) adversely affect the Liens on any
material portion of the Collateral.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (i) existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company or
a Restricted Subsidiary in connection with the acquisition of assets from such
Person, in each case not incurred in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct or cause the direction of management or policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth in "-- Certain Covenants
- - -- Limitation on Transactions with Affiliates."
"Appraiser" means a Person who in the ordinary course of its business
appraises property and, where real property is involved, who is a member in good
standing of the American Institute of Real Estate Appraisers, recognized and
licensed to do business in the jurisdiction where the applicable real property
is situated.
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
with the Company or any Restricted Subsidiary of the Company or (ii) the
acquisition by the Company or any Restricted Subsidiary of the Company of assets
of any Person comprising a division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value by the Company or by any
of its Restricted Subsidiaries to any Person other than to the Company or to a
Wholly Owned Restricted Subsidiary of (i) any Capital Stock of any Restricted
Subsidiary or (ii) any other property or assets of the Company or of any
Restricted Subsidiary, other than with respect to this clause (ii) any such
sale, conveyance, transfer, lease, assignment or other transfer for value in the
ordinary
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course of business; provided, however, Asset Sale shall not include any
transaction for fair market value for which the Company or its Restricted
Subsidiaries receive consideration of less than $750,000.
"Asset Sale Offer" has the meaning set forth in "-- Certain Covenants --
Limitation on Asset Sales."
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction as of any particular time, the present value (discounted at the rate
of interest implicit in the terms of the lease) of the obligations of the lessee
under such lease for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or may, at the
option of the Company, be extended).
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the board of directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any day which
banking institutions in the City of New York are required or authorized by law
or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease that are required to be
classified and accounted for as capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall be
the capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any commercial bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250.0 million and at the
time of purchase received one of the three highest ratings from the following
rating organizations: S&P and Moody's; and (v) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the board of directors of the Company): (i)
the Company consolidates with or merges with or into another Person or any
Person consolidates with, or merges with or into, the Company (in each case,
whether or not in compliance with the terms of the Indenture), in any such event
pursuant to a transaction in which immediately after the consummation thereof
the Permitted Holders shall cease to have the power, directly or indirectly
(including by way of a general partnership interest), to vote or direct the
voting of securities having at least 51.0% of the ordinary voting power for the
election of the directors of the Company; provided, that a merger of TFH and
TFCC into the Company made in compliance with the covenant described in "--
Certain Covenants -- Merger, Consolidation and Sale of Assets" will not be
considered a merger for purposes of this clause (i); or (ii) the Company or any
of its Restricted Subsidiaries, directly or indirectly, sells, assigns, conveys,
transfers, leases or otherwise disposes of, in one transaction or a series of
related transactions, all or substantially all of the property or assets of the
Company and its Restricted Subsidiaries (determined on a consolidated basis) to
any Person or group (other than a wholly owned Subsidiary of the Company) of
related Persons for purposes of Section 13(d) of the Exchange Act (a "Group
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of Persons"); or (iii) the adoption of any plan of liquidation or dissolution of
the Company (whether or not in compliance with the provisions of the Indenture);
or (iv) any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act (other than the Company or the Permitted Holders))
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of Capital Stock of the Company representing at least 35.0% of the voting power
of the Capital Stock of the Company and the Permitted Holders own or control
less than 35.0%; or (v) the replacement of a majority of the Board of Directors
of the Company over a two-year period from the directors who constituted the
Board of Directors of the Company at the beginning of such period with directors
whose replacement shall not have been approved (by recommendation, nomination or
election, as the case may be) by a vote of at least a majority of the Board of
Directors of the Company then still in office who either were members of such
Board of Directors at the beginning of such period or whose election as a member
of such Board of Directors was previously so approved. For purposes of the
foregoing, the transfer (by lease, assignment, sale or otherwise, in a single
transaction or series of transactions) of (a) 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.
"Class A Preferred Stock" means the 7,000 shares of Exchangeable Preferred
Stock of the Company, $.01 par value per share, Class A.
"Class B Preferred Stock" means the 21,737 shares of Preferred Stock of the
Company, $.01 par value per share, Class B.
"Collateral" means, collectively, all of the property and assets
(including, without limitation, Trust Moneys) that are from time to time subject
to, or purport to be subject to, the Lien of the Indenture or any of the
Security Documents.
"Collateral Account" means the collateral account to be established
pursuant to the Indenture.
"Collateral Proceeds" has the meaning set forth in "-- Certain Covenants --
Limitation on Sale of Assets."
"Commodity Agreement" of any Person means any option or futures contract or
similar agreement or arrangement.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (a) Consolidated Net Income and (b) to the extent Consolidated Net Income has
been reduced thereby, (i) all income taxes of the Company and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (ii) Consolidated Interest Expense, (iii) any amounts
excluded from the calculation of Consolidated Interest Expense pursuant to the
proviso of the definition thereof, (iv) the amount of any Preferred Stock
dividends paid in cash by the Company and its Restricted Subsidiaries and (v)
Consolidated Non-cash Charges, less any non-cash items increasing Consolidated
Net Income for such period, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of (a) Consolidated EBITDA of the Company during the four
full fiscal quarters for which financial information in respect thereof is
available (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated EBITDA
Coverage Ratio (the "Transaction Date") to (b) Consolidated Fixed Charges of the
Company for the Four Quarter Period. In addition to and without limitation of
the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect (without
duplication) on a pro forma basis for the period of such calculation to (a) the
incurrence or repayment of any Indebtedness of the Company or any of its
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Restricted Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (b) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of its Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness, and also
including, without limitation, any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If the Company or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if the Company or the Restricted Subsidiary, as the
case may be, had directly incurred or otherwise assumed such guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated EBITDA Coverage Ratio," (i) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date (other than the incurrence or repayment of
indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities); (ii) if interest on any Indebtedness
actually incurred on the Transaction Date may optionally be determined at an
interest rate based upon a factor of a prime or similar rate, a eurocurrency
interbank offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; (iii) notwithstanding clauses (i) and (ii) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all cash dividend payments on any series of
Preferred Stock of the Company and its Restricted Subsidiaries paid, accrued or
scheduled to be paid or accrued during such period times (other than any payment
of a dividend to the Company) (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective consolidated
federal, state and local income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (a) the aggregate of the interest
expense of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (i) any amortization of original issue discount, (ii) the net costs
under Interest Swap Obligations, (iii) all capitalized interest and (iv) the
interest portion of any deferred payment obligation; and (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period, as determined on a consolidated basis in accordance with GAAP; provided,
however, Consolidated Interest Expense shall not include non-cash dividends on
the Series A Preferred Stock which are treated as interest expense in accordance
with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income (or loss) of the Company and its Restricted
Subsidiaries for such period on a consolidated basis,
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determined in accordance with GAAP; provided, however, that there shall be
excluded therefrom (a) after-tax gains from Asset Sales or abandonments or
reserves relating thereto, (b) after-tax items classified as extraordinary or
nonrecurring gains, (c) the net income of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary or is merged or consolidated with the Company or any Restricted
Subsidiary, (d) the net income (but not loss) of any Restricted Subsidiary to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by charter, contract,
operation of law or otherwise, (e) the net income of any Person in which the
Company has an interest, other than a Restricted Subsidiary, except to the
extent of cash dividends or distributions actually paid to the Company or to a
Restricted Subsidiary by such Person, (f) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued) and (g) in the case of a successor to the Company by consolidation
or merger or as a transferee of the Company's assets, any net income (or loss)
of the successor corporation prior to such consolidation, merger or transfer of
assets.
"Consolidated Net Worth" of any Person as of any date means the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, depletion, amortization and other non-cash
expenses of the Company and its Restricted Subsidiaries reducing Consolidated
Net Income of the Company for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Disqualified Capital Stock" means any Capital Stock which, 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, (i) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the final maturity date of the Notes, or (ii) is convertible into or
exchangeable for (whether at the option of the issuer or the holder thereof) (a)
debt securities or (b) any Capital Stock referred to in (i) above, in each case
at any time prior to the final maturity of the Notes.
"Events of Default" has the meaning set forth in "-- Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended or any
successor statute or statutes thereto.
"Exchange Notes" means senior debt securities of the Company substantially
identical to the Notes except for the removal of transfer restrictions.
"Exchange Offer" means the Company's offer to exchange Exchange Notes for
the Notes.
"fair market value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction.
"Financial Advisor" means an accounting, appraisal or investment banking
firm of nationally recognized standing that is, in the reasonable and good faith
judgment of the board of directors of the Company, qualified to perform the task
for which such firm has been engaged.
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"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio." "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 may be
approved by a significant segment of the accounting profession of the United
States, which are in effect as of the Issue Date.
"Holder" means a Person holding a Note.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that (A) any Indebtedness of a
Person existing at the time such Person becomes (after the Issue Date) a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the
Company shall be deemed to be Incurred or issued, as the case may be, by such
Subsidiary at the time it becomes a Subsidiary of the Company and (B) any
amendment, modification or waiver of any document pursuant to which Indebtedness
was previously Incurred shall be deemed to be an Incurrence of Indebtedness
unless and to the extent such amendment, modification or waiver does not (i)
increase the principal or premium thereof or interest rate thereon (including by
way of original issue discount) or (ii) change to an earlier date the stated
maturity thereof or the date of any scheduled or required principal payment
thereon or the time or circumstances under which such Indebtedness shall be
redeemed.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and accrued liabilities arising
in the ordinary course of business that are not overdue by 90 days or more or
are being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted), (v) all Obligations for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) all Indebtedness of others (including all dividends of other
Persons for the payment of which is) guaranteed, directly or indirectly, by such
Person or that is otherwise its legal liability or which such Person has agreed
to purchase or repurchase or in respect of which such Person has agreed
contingently to supply or advance funds, (vii) net liabilities of such Person
under Interest Swap Obligations and Commodity Agreements, (viii) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
any asset or property (including, without limitation, leasehold interests and
any other tangible or intangible property) of such Person, whether or not such
Indebtedness is assumed by such Person or is not otherwise such Person's legal
liability; provided that if the Obligations so secured have not been assumed by
such Person or are otherwise not such Person's legal liability, the amount of
such Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount such Indebtedness secured by such Lien or the fair market
value of the assets or property securing such Lien, and (ix) all Preferred Stock
issued by such Person with the amount of Indebtedness represented by such
Preferred Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
accrued dividends if any. For purposes hereof, the "maximum fixed repurchase
price" of any Preferred Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Preferred Stock as if such
Preferred Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Preferred Stock, such fair
market value shall be determined reasonably and in good faith by the board of
directors of the issuer of such Preferred Stock. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date; provided that the amount
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outstanding at any time of any Indebtedness issued with original issue discount
is the full amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP.
"Independent" when used with respect to any specified Person means such a
Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries
and (c) is not an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions for the Company or any of its
Subsidiaries. Whenever it is provided in the Indenture that any Independent
Person's opinion or certificate shall be furnished to the Trustee, such Person
shall be appointed by the Company and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
thereof.
"Industrial Revenue Bonds" shall mean (i) the $4.2 million aggregate
principal amount of Industrial Revenue Bonds of the Industrial Development Board
of the County of Knox (General Mills, Inc. Project), Series 1979 (the "Knox
County Industrial Revenue Bonds") and (ii) the $5.8 million aggregate principal
amount of Industrial Revenue Bonds of Taylor County (the "Taylor County
Industrial Revenue Bonds").
"Intercreditor Agreement" means the intercreditor agreement dated as of
October 14, 1997 by and between the Trustee (in that capacity and as Collateral
Agent), for itself and on behalf of the Holders, and Congress, as such
Intercreditor Agreement is in effect on the Issue Date, other than any
amendment, alteration, modification, or waiver thereto to the extent not
materially adverse to the interests of the Company, the Trustee or the Holders,
and any substitute or replacement intercreditor agreement executed and delivered
as provided under the terms of the Intercreditor Agreement (or any such
substitute or replacement intercreditor agreement).
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect (i)
loan, advance or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property (valued at the fair market value thereof as of the date of transfer)
others or any payment for property or services for the account or use of
others), (ii) purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person (whether by merger, consolidation, amalgamation or otherwise and
whether or not purchased directly from the issuer of such securities or
evidences of Indebtedness), (iii) guarantee or assumption of the Indebtedness of
any other Person (other than the guarantee or assumption of Indebtedness of such
Person or a Restricted Subsidiary of such Person which guarantee or assumption
is made in compliance with the provisions of "-- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness" above), and (iv) other items that
would be classified as investments on a balance sheet of such Person prepared in
accordance with GAAP. Notwithstanding the foregoing, "Investment" shall exclude
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. The amount of any
Investment shall not be adjusted for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. If the
Company or any Restricted Subsidiary sells or otherwise disposes of any Capital
Stock of any Restricted Subsidiary such that, after giving effect to any such
sale or disposition, it ceases to be a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Capital Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Old Notes.
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"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option, right of first refusal or other similar agreement to sell,
in each case securing obligations of such Person and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statute or statutes) of any jurisdiction other than to reflect ownership by a
third party of property leased to the referent Person or any of its Subsidiaries
under a lease that is not in the nature of a conditional sale or title retention
agreement).
"Material Subsidiary" means, at any date of determination, any Subsidiary
of the Company that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 5.0% of the consolidated
revenues of the Company or (ii) as of the end of such fiscal year, was the owner
of more than 5.0% of the consolidated assets of the Company, all as set forth on
the most recently available consolidated financial statements of the Company and
its consolidated Subsidiaries for such fiscal year prepared in conformity with
GAAP.
"Net Award" has the meaning assigned to such term in the Security Documents
but generally means the proceeds, award or payment from any condemnation or
other eminent domain proceeding regarding all or any portion of the Collateral
less collection expenses.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents)
received by the Company or any of its Restricted Subsidiaries from such Asset
Sale (except to the extent that such obligations are sold with recourse to the
Company or to any Restricted Subsidiary) net of (a) reasonable out-of-pocket
expenses and fees relating to such Asset Sale (including, without limitation,
brokerage, legal, accounting and investment banking fees and sales commissions),
(b) taxes paid or payable ((1) including, without limitation, income taxes
reasonably estimated to be actually payable as a result of any disposition of
property within two years of the date of disposition and (2) after taking into
account any reduction in tax liability due to available tax credits or
deductions and any tax sharing arrangements) and (c) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve, in accordance with generally accepted accounting principles, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale (but excluding any
payments which, by the terms of the indemnities will not, be made during the
term of the Notes).
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds received
by the Company, after payment of expenses, commissions and the like (including,
without limitation, brokerage, legal, accounting and investment banking fees and
commissions) incurred in connection therewith, and (b) in the case of any
exchange, exercise, conversion or surrender of any outstanding Indebtedness of
the Company or any Subsidiary for or into shares of Qualified Capital Stock of
the Company, the amount of such Indebtedness (or, if such Indebtedness was
issued at an amount less than the stated principal amount thereof, the accrued
amount thereof as determined in accordance with GAAP) as reflected in the
consolidated financial statements of the Company prepared in accordance with
GAAP as of the most recent date next preceding the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder of such Indebtedness to the Company or to any wholly owned
Subsidiary of the Company upon such exchange, exercise, conversion or surrender
and less any and all payments made to the holders of such Indebtedness, and all
other expenses incurred by the Company in connection therewith), in each case
(a) and (b) to the extent consummated after the Issue Date; provided that the
exchange, exercise, conversion or surrender of any Indebtedness which is
subordinated (whether pursuant to its terms or by operation of law) to the Notes
shall not be or be deemed to be included in Net Equity Proceeds.
"Net Proceeds" has the meaning assigned to such term in the Security
Documents but generally means the insurance proceeds paid as the result of the
destruction or condemnation of all or any portion of the Collateral less
collection expenses.
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"Non-Collateral Proceeds" has the meaning set forth in "-- Certain
Covenants -- Limitation on Asset Sales."
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two officers of the
Company.
"Opinion of Counsel" means a written opinion from legal counsel which and
who are acceptable to the Trustee.
"payment default" has the meaning set forth in "-- Events of Default."
"Permitted Holders" means Mr. Michael E. Heisley, his spouse, direct lineal
descendants, any trust for the benefit of any of the foregoing.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Old Notes, the Exchange Notes and the
Indenture (other than any Old Notes or Exchange Notes issued pursuant to
clause (b)(ii) under the "Limitation on Indebtedness" covenant);
(ii) Indebtedness outstanding from time to time pursuant to the
Working Capital Facility in an aggregate principal amount not to exceed
$17.0 million outstanding at any time, plus interest, fees, costs and
expenses from time to time payable under or in connection with the Working
Capital Facility, reduced by any permanent repayments (which are
accompanied by a corresponding permanent commitment reduction) thereunder;
(iii) Commodity Agreements of the Company; provided, however, that
such Commodity Agreements are entered into to protect the Company from
fluctuations in the prices of commodities;
(iv) Interest Swap Obligations of the Company; provided, however, that
such Interest Swap Obligations are entered into to protect the Company from
fluctuations in interest rates on Indebtedness Incurred in accordance with
the Indenture to the extent the notional principal amount of such Interest
Swap Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) additional Indebtedness Incurred by the Company or any Restricted
Subsidiary in an aggregate principal amount not to exceed $5.0 million
outstanding at any time;
(vi) Indebtedness of a Restricted Subsidiary to the Company or to a
Wholly Owned Restricted Subsidiary for so long as such Indebtedness is held
by the Company or a Wholly Owned Restricted Subsidiary in each case subject
to no Lien held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary; provided that if as of any date any Person other
than the Company or a Wholly Owned Restricted Subsidiary owns or holds any
such Indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the Incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Refinancing Indebtedness;
(viii) guarantees by Restricted Subsidiaries of Indebtedness of the
Company permitted under the Indenture; provided, however, such Restricted
Subsidiaries have complied with the "Limitation on Guarantees by
Subsidiaries" covenant;
(ix) Indebtedness of the Company under Currency Agreements; provided,
however, that such Currency Agreements are entered into to protect the
Company from fluctuations in currency;
(x) the Class A Preferred Stock and the Class B Preferred Stock;
(xi) the Industrial Revenue Bonds; and
(xii) non-contingent Indebtedness of the Company in an aggregate
principal amount not to exceed $2.0 million which is incurred in any fiscal
year to purchase distributorships and distributorship assets.
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"Permitted Investments" means (a) investments in cash and Cash Equivalents;
(b) Investments by the Company or by any Restricted Subsidiary in any Person
that is or will become immediately after such Investment a Restricted Subsidiary
or that will merge or consolidate into the Company or a Restricted Subsidiary
that is not subject to any Payment Restriction; (c) any Investments in the
Company by any Restricted Subsidiary of the Company; provided that any
Indebtedness evidencing such Investment is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations in respect of the Notes and
the Indenture; (d) Investments made by the Company or by its Restricted
Subsidiaries as a result of an Asset Sale made in compliance with "-- Certain
Covenants -- Limitation on Sale of Assets" above and (e) additional Investments
in Unrestricted Subsidiaries or joint ventures not to exceed $2.0 million at any
one time.
"Permitted Liens" means, without duplication, each of the following:
(i) pledges or deposits by such Person under worker's compensation
laws, unemployment insurance laws or other types of social security and
similar legislation (other than the Employee Retirement Income Security Act
of 1974, as amended), or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases
to which such person is a party, or deposits to secure public statutory
obligations of such person or deposits to secure surety or appeal bonds to
which such person is a party, or deposits as security for contested taxes
or import duties or for the payment of rent;
(ii) Liens imposed by law, such as landlords', carriers',
warehousemen's and mechanics' Liens or bankers' Liens incurred in the
ordinary course of business for sums which are not yet due or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which the Company or any of its Restricted
Subsidiaries have set aside on its books such reserves as may be required
pursuant to GAAP;
(iii) Liens for taxes not yet subject to penalties for non-payment or
which are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, if adequate reserve, as may be
required by GAAP, shall have been made therefor;
(iv) Liens in favor of issuers of surety bonds or appeal bonds issued
pursuant to the request of and for the account of such person in the
ordinary course of its business;
(v) Liens to support trade letters of credit issued in the ordinary
course of business;
(vi) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions
on the use of real property which do not in any case materially detract
from the value of the property subject thereto or do not interfere in any
material respect with the ordinary conduct of the Company or any of its
Subsidiaries;
(vii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(viii) Liens in favor of the Company;
(ix) Liens to secure Capitalized Lease Obligations in respect of Sale
and Leaseback Transactions of property or assets not constituting
Collateral to the extent consummated in compliance with the Indenture and
the Security Documents; provided that such Liens do not extend to or cover
any property or assets of the Company or of any of its Restricted
Subsidiaries, other than the property or assets subject to such Capitalized
Lease Obligation;
(x) Liens in respect of Refinancing Indebtedness incurred to Refinance
any of the Indebtedness set forth in clause (ix) above; provided that such
Liens in respect of such Refinancing Indebtedness (I) are no less favorable
to the Holders and are not more favorable to the lienholders with respect
to such Liens than the Liens in respect of the Indebtedness being
Refinanced and (II) do not extend to or cover any
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properties or assets of the Company or of any of the Company's
Subsidiaries, other than the property or assets that secured the
Indebtedness being Refinanced;
(xi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other
goods;
(xii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xiii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company, including rights of offset and set-off;
(xiv) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xv) Liens securing Indebtedness under Currency Agreements;
(xvi) Liens securing any Indebtedness under the Working Capital
Facility; provided, however, that, such Liens extend solely to the
categories of collateral which were the subject of Liens securing the
Working Capital Facility as of the Issue Date;
(xvii) Liens securing any Indebtedness under the Industrial Revenue
Bonds; provided, however, that, such Liens extend solely to the collateral
which were the subject of Liens securing the Industrial Revenue Bonds as of
the Issue Date; and
(xviii) Liens securing Indebtedness permitted under clause (xii) of
the definition of Permitted Indebtedness; provided, however, that such
Liens extend solely to the distributorship assets acquired with such
Indebtedness.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means (A) any Refinancing by the Company of
Indebtedness of the Company initially Incurred in accordance with the "--
Certain Covenants -- Limitation on Indebtedness" (other than pursuant to clause
(ii), (iii), (iv), (v), (vi), (vii), (ix), (x) or (xii) of the definition of
Permitted Indebtedness) or (B) any Refinancing by any Restricted Subsidiary of
the Company of Indebtedness Incurred by such Subsidiary in accordance with
clause (v) of the definition of Permitted Indebtedness, in each case (A) and
(B) that does not (1) result in an increase in the aggregate principal amount
of Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing) or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; provided that (x) if such Indebtedness being Refinanced is
Indebtedness of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company, (y) if such Indebtedness being Refinanced
is subordinate or junior to the Notes, then such Refinancing Indebtedness shall
be subordinate to the Notes at least to the same extent and in the same manner
as the Indebtedness being
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<PAGE> 97
Refinanced and (z) such Refinancing Indebtedness is not Incurred more than three
months prior to the complete retirement and defeasance of the Indebtedness being
Refinanced with the proceeds thereof.
"Related Business Investment" means any Investment, capital expenditure or
other expenditure by the Company which is related to the business of the Company
and its Restricted Subsidiaries as it is conducted on the date of the Asset Sale
giving rise to the Net Cash Proceeds to be reinvested.
"Restoration" has the meaning assigned to such term in each of the
Mortgages but generally means the restoration of all or any portion of the
Collateral in connection with any destruction or condemnation thereof.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with "-- Certain Covenants -- Limitation on Restricted and
Unrestricted Subsidiaries" above. Any such designation may be revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"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 Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
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.
"Security Documents" means, collectively, (i) the Security Agreement, (ii)
the Mortgages and (iii) all security agreements, mortgages, deeds of trust,
pledges, collateral assignments and other instruments evidencing or creating
security interests in favor of the Trustee (for its benefit and the benefit of
the Holders) in all or any portion of the Collateral, in each case as amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with their terms.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of August
30, 1996 between the Company and TFH.
"Trust Moneys" means all cash or Cash Equivalents received by the Trustee
(a) upon the release of property from the Lien of the Indenture and/or the
Security Documents, including all moneys received in respect of the principal of
all purchase money, governmental and other obligations; or (b) as compensation
for or proceeds of the sale of all or any part of the Collateral taken by
eminent domain or purchased by, or sold pursuant to any order of, a governmental
authority, or otherwise disposed of; or (c) pursuant to certain provisions of
the Mortgage; or (d) as proceeds of any other sale or other disposition of all
or any part of the Collateral by or on behalf of the Trustee or any collection,
recovery, receipt, appropriation or other realization of or from all or any part
of the Collateral pursuant to the Indenture or any of the Security Documents or
otherwise; or (e) for application under the Indenture as provided in the
Indenture or any Security Document, or disposition of which is not otherwise
specifically provided for in the Indenture or in any Security Document; provided
that Trust Moneys shall in no event include any property deposited with the
Trustee for any Change of Control Offer or redemption or defeasance of any
Notes.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with "-- Certain Covenants -- Limitation on
Restricted and Unrestricted Subsidiaries" above. Any such designation may be
revoked by a Board Resolution of the Company delivered to the Trustee, subject
to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into
94
<PAGE> 98
(b) the total of the product obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities which normally have the right to
vote in the election of directors are at the time owned directly or indirectly
by the Company or any Wholly Owned Restricted Subsidiary.
"Working Capital Facility" means the Amended and Restated Loan and Security
Agreement dated as of October 14, 1997, between the Company and Congress,
together with the other "Financing Agreements (as defined in therein) as the
same may be amended from time to time, and any agreement evidencing the
refinancing, modification, replacement, renewal, restatement, refunding,
deferral, extension, substitution, supplement, reissuance or resale thereof.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 10,000 shares of Common Stock, $.01 par
value per share and 100,000 shares of Preferred Stock, $.01 par value per share.
5,000 shares of the Common Stock are issued and outstanding and 28,737 shares of
the Preferred Stock are issued and outstanding. TFH is the holder of 80.0% of
the Common Stock and the remaining 20.0% of the Common Stock is held by TFCC.
TFH is the holder of all of the shares of the Preferred Stock.
The following description of the capital stock of the Company and certain
provisions of the DGCL, the Certificate, the Certificate of Designations,
Preferences and Rights with regard to each of the Company's Class A Exchangeable
Preferred Stock (the "Class A Preferred Stock") and the Company's Class B
Preferred Stock (the "Class B Preferred Stock") (respectively, the "Series A
Certificate" and the "Series B Certificate") is a summary and is qualified in
its entirety by the DGCL, the Certificate, the Series A Certificate and the
Series B Certificate.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders and to vote on all
matters on which a vote of stockholders is taken, except as otherwise provided
by statute. The shares of Common Stock do not have cumulative voting rights.
Therefore, the holders of a majority of shares voting for the election of
directors can elect all of the directors then standing for election, if they
choose to do so. Holders of Common Stock are entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally available
therefor and, in the event of liquidation, dissolution or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities. The ability of the Company to pay dividends on its Common Stock is
limited by certain senior indebtedness of the Company. Furthermore, the
Company's Certificate of Incorporation prohibits the Company from paying
dividends on the Common Stock if the Company is not current in its dividend
payments on the Preferred Stock. The Preferred Stock ranks prior to the Common
Stock and any other class or series of common stock as to the payment of
dividends and distributions upon liquidation, dissolution or winding up. The
shares of Common Stock are not subject to liability for calls or assessments and
have no conversion rights, sinking fund privileges or preemptive rights.
PREFERRED STOCK
On October 14, 1997 the Company issued 7,000 shares of Class A Preferred
Stock and 21,737 shares of Class B Preferred Stock. The Class A Preferred Stock,
with an aggregate initial liquidation preference of $7.0 million, was issued to
TFH in exchange for $7.0 million of outstanding TFH Debt. The Class B Preferred
Stock with an aggregate initial liquidation preference of approximately $21.7
million, was issued to TFH in exchange for the remaining outstanding TFH Debt.
The Preferred Stock is non-voting except as required by law and except in
certain circumstances, including: (i) amending certain rights of the holders of
the Class A
95
<PAGE> 99
Preferred Stock or the Class B Preferred Stock, as applicable; and (ii) the
issuance of any class of equity securities of the Company that ranks on a parity
with or senior to the Class A Preferred Stock or the Class B Preferred Stock, as
applicable. The Class A Preferred Stock ranks senior to the Class B Preferred
Stock.
Dividends on the Class A Preferred Stock accrue at a rate of 10 1/2% and
dividends on the Class B Preferred Stock accrue at a rate of 9 1/2%. Dividends
on the Preferred Stock accrue on the then current liquidation preference of the
Preferred Stock and are payable commencing on May 1, 1998 and thereafter
semi-annually in arrears on each November 1 and May 1 . Dividends will be paid
from legally available funds, when, as and if declared by the Board of Directors
of the Company by increasing the liquidation preference of the Preferred Stock
or at the option of the Company, as permitted under the Indenture and the
Working Capital Facility, in cash.
Upon the occurrence of a Change of Control, holders of up to $10.0 million
of the Class A Preferred Stock will be entitled to require the Company to
purchase such holder's Class A Preferred Stock at a purchase price equal to
100.0% of the liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends to the purchase date.
The Preferred Stock is redeemable at the option of the Company, in whole or
in part, at a purchase price equal to the liquidation preference, plus accrued
and unpaid dividends thereon.
On or after January 1, 1999, up to an aggregate of $10.0 million in
liquidation preference of the Class A Preferred Stock may be exchangeable, at
the Company's option, for an equal principal amount of Exchange Notes; provided
however, that such exchange is conditioned upon the Company having a
Consolidated Fixed Charge Coverage Ratio (as defined under "Description of the
Notes") on a pro-forma basis of at least 2.25:1.0 for the 12-month period ended
on the last day of the most recent fiscal quarter assuming the exchange occurred
on the first day of such 12-month period.
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<PAGE> 100
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The exchange of an Old Note for an Exchange Note pursuant to the Exchange
Offer should not be treated as an exchange for United States federal income tax
purposes. Therefore, an Exchange Note should be treated as a continuation of the
corresponding Old Note and, as a result, exchanging beneficial owners should not
recognize any gain or loss on the exchange, their holding period for the
Exchange Note should include their holding period for the Old Note and their
basis in the Exchange Note should be the same as his basis in the Old Note.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the management of the Company
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act), 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, such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and neither such holder nor any such other person is
engaging in or intends to engage in a distribution of such Exchange Notes.
Accordingly, any holder who is an affiliate of the Company or any holder using
the Exchange Offer to participate in a distribution of the Exchange Notes will
not be able to rely on such interpretations by the staff of the Commission and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a resale transaction. Notwithstanding the
foregoing, 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. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired 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, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
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 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. Any such
broker-dealer that resells Exchange Notes that were received by it for its own
account and any broker-dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of 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 as required, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, 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
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Old Notes) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Old Notes (including any
broker-dealers) participating in the Exchange Offer against certain liabilities,
including liabilities under the Securities Act.
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<PAGE> 101
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
McDermott, Will & Emery, Chicago, Illinois. Stanley H. Meadows, the Assistant
Secretary and a Director of the Company, TFH and TFCC, is a partner (through a
professional corporation) of McDermott, Will & Emery.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act, for the registration of
the securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits thereto, and financial statements and notes
filed as a part thereof. Statements made in this Prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is not currently subject to the periodic reporting or other
information requirements of the Exchange Act. During such time as the Company is
not subject to such requirements, the Company has agreed that, so long as the
Old Notes or the Exchange Notes remain outstanding, it will file with the
Commission and distribute to holders of the Old Notes or the Exchange Notes, as
applicable, copies of the financial information that would have been contained
in the annual reports and quarterly reports that the Company would have been
required to file with the Commission pursuant to the Exchange Act. Such
financial information shall include annual reports containing consolidated
financial statements and notes thereto, together with an opinion thereon
expressed by an independent public accounting firm, management's discussion and
analysis of financial condition and results of operations as well as quarterly
reports containing unaudited condensed consolidated financial statements for the
first three quarters of each fiscal year. The Company will also make such
reports available to persons considering exchanging Old Notes for Exchange
Notes, securities analysts and broker-dealers upon their request. In addition,
the Company has agreed to furnish to holders of Notes and prospective purchasers
of the Notes designated by such holders, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act,
until such time as the Company has either exchanged the Notes for securities
identical in all material respects which have been registered under the
Securities Act or has registered the Notes for resale under the Securities Act
and at certain other times thereafter.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of the Indenture, the Registration Rights Agreement, and the Company's
Certificate of Incorporation and Bylaws. Requests should be directed to Tom's
Foods Inc., Attention: Lyn D. Anderson, Secretary, 900 8th Street, Columbus,
Georgia 31902; telephone number (706) 323-2721.
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<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 30, 1995, December 28, 1996
and June 14, 1997 (unaudited)............................. F-3
Statements of Operations for the years ended December 31,
1994, December 30, 1995, December 28, 1996, and the
24-week periods ended June 15, 1996 (unaudited) and June
14, 1997 (unaudited)...................................... F-4
Statements of Changes in Shareholders' Equity for the years
ended December 31, 1994, December 30, 1995, December 28,
1996, and the 24-week period ended June 14, 1997
(unaudited)............................................... F-5
Statements of Cash Flows for the years ended December 31,
1994, December 30, 1995, December 28, 1996, and the
24-week periods ended June 15, 1996 (unaudited) and June
14, 1997 (unaudited)...................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Tom's Foods Inc.:
We have audited the accompanying balance sheets of TOM'S FOODS INC. (a
Delaware corporation) as of December 30, 1995 and December 28, 1996 and the
related statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 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 Tom's Foods Inc. as of
December 30, 1995 and December 28, 1996 and the results of its operations and
its cash flows for each of the three years in the period ended December 28, 1996
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 14, 1997
F-2
<PAGE> 104
TOM'S FOODS INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 14,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments........................... $ 1,711 $ 2,117 $ 1,894
Accounts and notes receivable, net........................ 13,918 18,519 17,255
Inventories:
Raw materials........................................... 3,012 2,464 2,916
Packaging materials..................................... 3,068 2,643 2,340
Finished goods and work in progress..................... 4,056 4,751 4,758
Other current assets...................................... 2,346 2,250 2,434
-------- -------- --------
Total current assets.................................. 28,111 32,744 31,597
-------- -------- --------
Property, Plant, and Equipment:
Land and land improvements................................ 5,972 5,518 5,528
Buildings................................................. 14,972 14,143 14,269
Machinery, equipment and vehicles......................... 37,765 39,895 41,256
Vending and other distribution equipment.................. 6,955 8,792 9,436
Furniture and fixtures.................................... 7,910 8,191 8,504
Construction in progress.................................. 1,844 3,034 2,295
-------- -------- --------
Total property, plant and equipment................... 75,418 79,573 81,288
Accumulated depreciation.................................. (18,847) (24,610) (27,449)
-------- -------- --------
Net property, plant and equipment..................... 56,571 54,963 53,839
-------- -------- --------
Noncurrent accounts and notes receivable, net............... 555 433 351
Other assets................................................ 1,644 1,709 1,734
Goodwill and intangible assets, net......................... 51,619 49,941 49,167
-------- -------- --------
Total assets.......................................... $138,500 $139,790 $136,688
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 9,229 $ 14,270 $ 9,858
Accrued liabilities....................................... 10,383 8,273 7,229
Borrowings under the revolving line of credit............. 8,000 0 0
Current portion of restructuring reserves................. 3,516 1,152 764
Current portion of senior term loan....................... 8,125 0 0
Current portion of senior credit agreement................ 0 1,533 1,803
Current portion of capital lease and other debt
obligations............................................. 288 24 25
Current portion of other long-term obligations............ 135 130 0
-------- -------- --------
Total current liabilities............................. 39,676 25,382 19,679
-------- -------- --------
Long-Term Debt:
Senior credit agreement................................... 0 7,363 7,135
Senior term loan.......................................... 40,053 0 0
Term loan from TFH Corp................................... 0 59,828 59,828
Accrued interest due to TFH Corp.......................... 0 2,249 6,192
Subordinated loan......................................... 7,500 0 0
Industrial development revenue bonds...................... 10,000 10,000 10,000
Capital lease and other debt obligations.................. 1,331 327 311
Note payable.............................................. 0 7,192 7,983
-------- -------- --------
Total long-term debt.................................. 58,884 86,959 91,449
Other long-term obligations................................. 1,121 372 486
Restructuring reserves...................................... 2,934 2,207 2,207
Accrued pension cost........................................ 5,893 6,109 6,526
Accrued postretirement benefits other than pensions......... 2,406 2,242 2,242
Commitments and Contingencies (Notes 3, 7, 8 and 9)
Shareholders' Equity:
Common stock, $.01 par value; 10,000 shares authorized,
1,000, 5,000, and 5,000 shares issued and outstanding at
December 30, 1995, December 28, 1996, and June 14, 1997,
respectively............................................ 0 0 0
Additional paid-in capital................................ 42,725 42,725 42,725
Accumulated deficit....................................... (15,139) (26,206) (28,626)
-------- -------- --------
Total shareholders' equity............................ 27,586 16,519 14,099
-------- -------- --------
Total liabilities and shareholders' equity............ $138,500 $139,790 $136,688
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 105
TOM'S FOODS INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED 24-WEEK PERIOD ENDED
-------------------------------------------- ----------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 15, JUNE 14,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................ $ 215,650 $ 198,340 $ 205,856 $ 91,811 $ 100,480
Cost of goods sold............... (130,774) (125,396) (133,624) (59,398) (62,908)
--------- --------- --------- --------- ---------
Gross profit................... 84,876 72,944 72,232 32,413 37,572
--------- --------- --------- --------- ---------
Expenses and other income:
Selling and administrative
expenses.................... (78,937) (75,783) (69,735) (30,688) (34,732)
Amortization of goodwill and
intangible assets........... (1,678) (1,678) (1,678) (775) (774)
Other income................... 1,890 3,296 1,309 238 513
Restructuring and nonrecurring
charges..................... 0 (9,570) (3,793) 0 0
--------- --------- --------- --------- ---------
(78,725) (83,735) (73,897) (31,225) (34,993)
--------- --------- --------- --------- ---------
Income (loss) from
operations.................. 6,151 (10,791) (1,665) 1,188 2,579
Interest expense, net............ (6,405) (7,870) (9,402) (3,687) (4,768)
--------- --------- --------- --------- ---------
Loss before income taxes....... (254) (18,661) (11,067) (2,499) (2,189)
Provision (benefit) for income
taxes.......................... 500 (400) 0 228 231
--------- --------- --------- --------- ---------
Net loss....................... $ (754) $ (18,261) $ (11,067) $ (2,727) $ (2,420)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 106
TOM'S FOODS INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED MINIMUM
COMMON STOCK ADDITIONAL EARNINGS PENSION
---------------------------- PAID-IN (ACCUMULATED LIABILITY
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994..... 1,000 $ 0 $ 42,725 $ 3,876 $ 0
Net loss..................... 0 0 0 (754) 0
Minimum pension liability
adjustment................ 0 0 0 0 (717)
-------- -------- -------- -------- --------
Balance at December 31, 1994... 1,000 0 42,725 3,122 (717)
Net loss..................... 0 0 0 (18,261) 0
Minimum pension liability
adjustment................ 0 0 0 0 717
-------- -------- -------- -------- --------
Balance at December 30, 1995... 1,000 0 42,725 (15,139) 0
Shares issued................ 4,000 0 0 0 0
Net loss..................... 0 0 0 (11,067) 0
-------- -------- -------- -------- --------
Balance at December 28, 1996... 5,000 0 42,725 (26,206) 0
Net loss (unaudited)......... 0 0 0 (2,420) 0
-------- -------- -------- -------- --------
Balance at June 14, 1997
(unaudited).................. 5,000 $ 0 $ 42,725 $(28,626) $ 0
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 107
TOM'S FOODS INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED 24 WEEK PERIOD ENDED
------------------------------------------ ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 15, JUNE 14,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................... $ (754) $(18,261) $(11,067) $ (2,727) $ (2,420)
-------- -------- -------- -------- --------
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization........ 9,437 9,595 7,956 3,885 4,077
Restructuring and nonrecurring
charges........................... 0 9,570 3,793 0 0
Provision (benefit) for income
taxes............................. 500 (400) 0 228 231
Loss (gain) on disposal of property,
plant, and equipment.............. 13 244 (121) 62 (17)
Net gain on sales of receivables..... (63) (22) 0 0 0
Changes in assets and liabilities:
Accounts and notes receivable..... 513 (2,263) (4,479) (5,186) 1,346
Inventories....................... 477 1,648 278 (286) (156)
Other assets...................... 508 1,600 2,661 203 (209)
Accounts payable.................. 1,617 (224) 4,731 5,022 (4,412)
Other liabilities................. (2,902) (6,730) 5,025 2,536 2,782
Prepaid and accrued pension
cost............................ 104 482 216 23 417
Accrued postretirement benefits
other than pensions............. (78) (64) (164) (22) 0
-------- -------- -------- -------- --------
Total adjustments............... 10,126 13,436 19,896 6,465 4,059
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities................. 9,372 (4,825) 8,829 3,738 1,639
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Additions to property, plant, equipment
and vending machines................. (9,006) (7,304) (5,798) (1,728) (1,910)
Proceeds from disposal of property,
plant and equipment.................. 436 0 422 89 7
-------- -------- -------- -------- --------
Net cash used in investing
activities................... (8,570) (7,304) (5,376) (1,639) (1,903)
-------- -------- -------- -------- --------
Cash Flows from Financing Activities:
Repayments of long-term debt........... (3,255) (4,218) (10,252) 0 (799)
Proceeds from long-term debt........... 0 8,931 9,000 0 840
Proceeds from sale of vending
machine leases....................... 5,040 2,402 300 300 0
Refinancing costs...................... 0 0 (2,095) 0 0
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities......... 1,785 7,115 (3,047) 300 41
-------- -------- -------- -------- --------
Increase (decrease) in cash and
short-term investments................. 2,587 (5,014) 406 2,399 (223)
Cash and short-term investments,
beginning of year...................... 4,138 6,725 1,711 1,711 2,117
-------- -------- -------- -------- --------
Cash and short-term investments,
end of year.......................... $ 6,725 $ 1,711 $ 2,117 $ 4,110 $ 1,894
======== ======== ======== ======== ========
Interest paid during the year............ $ 7,002 $ 6,765 $ 2,512 $ 521 $ 1,233
Income taxes paid during the year........ 363 0 0 0 0
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 108
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, DECEMBER 30, 1995, AND DECEMBER 28, 1996
(INFORMATION AS OF JUNE 14, 1997 AND FOR THE 24-WEEK PERIODS ENDED
JUNE 15, 1996 AND JUNE 14, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Tom's Foods Inc. (the "Company") manufactures and distributes snack food
products. The principal markets for these products are the southeastern and
southwestern United States.
REFINANCING
On August 30, 1996, the Company refinanced its debt obligations (Note 4).
In connection with the debt refinancing, TFH Corp. ("TFH") was formed. TFH was
capitalized by various parties under common control with Tom's Foods Capital
Corporation, the prior parent. TFH used the proceeds to purchase outstanding
senior and subordinated debt obligations of the Company. In return for
subordinating its purchased debt claims and a deferral of interest and principal
payments, TFH received 80% of the common stock of the Company, making TFH the
Company's new parent. This transaction was accounted for as a purchase of
entities under common control. Therefore, no change in the basis of assets and
liabilities was recorded.
FISCAL YEAR
The Company's fiscal year is the 52- or 53-week period ending the Saturday
nearest to December 31.
CASH AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investment instruments with an
original maturity of three months or less to be cash equivalents. These
investments are stated at cost, which approximates market value.
INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements as of June 14, 1997 and for the 24-week periods
ended June 15, 1996 and June 14, 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the unaudited financial statements for
these interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and are depreciated using
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Land improvements........................................... 20 years
Buildings................................................... 32 years
Machinery, equipment and vehicles........................... 3 to 12 years
Vending machines and other distribution equipment........... 5 to 10 years
Furniture and fixtures...................................... 3 to 10 years
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost for raw materials, packaging materials and work in
progress. Finished goods cost is determined using a standard costing system,
which approximates the first-in, first-out method. Market is defined as
replacement cost for
F-7
<PAGE> 109
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
raw materials and packaging materials and net realizable value for finished
goods and work in progress. Cost elements include the cost of raw materials,
direct labor and overhead incurred in the manufacturing process.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets arose during the acquisition of the Company
on May 13, 1993. The Company has attributed these to a distribution system, an
assembled staff, various trademarks and goodwill. These items are being
amortized using the straight-line method over their estimated composite life (35
years). The Company periodically reviews the value assigned to goodwill and
intangible assets to determine whether events and circumstances have occurred
which indicate that the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. The
Company uses an estimate of undiscounted net income over the remaining life of
the goodwill in measuring whether the goodwill is recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and
short-term investments, trade receivables, notes receivable, accounts payable,
purchase commitments, senior loans, industrial development revenue bonds,
subordinated debt, other long-term obligations and capital lease obligations. In
management's opinion, the carrying amounts of these financial instruments
approximate their fair values at December 30, 1995 and December 28, 1996.
DISTRIBUTOR FRANCHISE REVENUE
The Company sells distributorships in the normal course of business. During
the third quarter of 1995, the Company changed its strategy for the sale of a
certain type of distributorship. Management determined that this type of
distributorship was not operating effectively, developed a strategy to
restructure the affected portion of the distribution network, and discontinued
the sale of these affected distributorships (Note 2). When the Company sold
these distributorships, the majority of the purchase price was financed by the
Company through the receipt of a note, usually bearing interest at 10%. The
revenues from the purchase of rights to the service area and the direct costs
associated with the selling of the distributor rights were deferred and were
recognized at the one-year anniversary of the sale of the distributorship, the
date on which the distributor could no longer terminate the related agreement
without obligation to the Company. The Company recognized revenue, net of direct
costs, of approximately $1,511,000, $3,613,000, and $50,000 for the years ended
December 31, 1994, December 30, 1995, and December 28, 1996, respectively,
related to the sale of the above routes.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current period presentation.
F-8
<PAGE> 110
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EFFECT OF ACCOUNTING PRONOUNCEMENTS
Effective December 30, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets to Be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS No. 121 is not material to the financial
statements as of December 28, 1996.
In November 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." The statement requires
all companies to disclose additional information about their employee
stock-based compensation plans. The Company adopted SFAS No. 123 effective
December 30, 1995 and has determined that the effect of this statement on its
financial statements is not material.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
requires companies to use consistent standards for distinguishing between
transfers of assets classified as sales and transfers of assets classified as
secured borrowings. The Company is required to adopt SFAS No. 125 for the year
ending January 3, 1998 and has not yet determined the effect of this statement
on its financial statements.
TRANSACTIONS WITH RELATED PARTIES
The Company has entered into consulting arrangements with the Chairman of
the Board and a Director of the Company for providing consulting services to the
Company. In respect of such consulting services, each received $100,000 for the
year ended December 28, 1996 and $42,000 for the 24-week period ended June 14,
1997.
In connection with the term loan from TFH (Note 4), the Company recognized
interest expense of $7,750,000 for the year ended December 28, 1996 and
$3,636,000 for the 24-week period ended June 14, 1997.
As part of the August 30, 1996 refinancing, the stockholders of TFH caused
letters of credit to be posted in the aggregate face amount of $10,000,000 to
replace the letters of credit posted by the Company to back the industrial
development revenue bonds discussed in Note 4. In connection with the 1996
refinancing, the stockholders of TFH assigned their reimbursement rights against
the Company to TFH and TFH agreed to subordinate its rights to Congress. After
the Offering, TFH will waive its rights to reimbursement through December 31,
2005 and thereafter, subject to the terms of the subordination, the Company will
be obligated to reimburse TFH for any draws which have been or are subsequently
made on the TFH stockholders' letters of credit.
2. RESTRUCTURING RESERVES
In 1991, the Company adopted a plan to restructure a substantial portion of
its distribution system. The plan involved converting failed multi-route
distributorships to single-route distributorships. In conjunction with this
plan, the Company recorded a restructuring charge of $29,852,000 (the "1991
Reserve") for costs and expenses related to the assumption of certain
distributor liabilities, losses from the temporary operation of company-owned
routes, and additional expenses. For the years ended December 31, 1994 and
December 30, 1995, approximately $6,500,000 and $2,625,000, respectively, of
losses and expenses related to the distribution system restructuring were
charged against the 1991 Reserve, leaving a remaining reserve of $9,645,000.
During the third quarter of 1995, the Company decided to stop the
conversion to the single-route distribution concept discussed above. The Company
decided at that time to pursue a multi-route distribution system. As a result,
the remaining 1991 Reserve of $9,645,000 discussed above was reversed.
Management
F-9
<PAGE> 111
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estimated that the Company would incur expenses of approximately $6,450,000 to
restructure the distribution system and recorded a new restructuring reserve in
that amount. In addition to the $6,450,000 restructuring reserve charge, the
Company recorded nonrecurring charges of approximately $12,765,000 associated
with severance and other benefit costs related to changes in the administrative
and sales functions and the write-off of certain assets.
For the year ended December 28, 1996, approximately $3,091,000 of losses
and expenses related to the restructuring of the distribution system were
charged against the 1995 reserve of $6,450,000, resulting in a remaining balance
of $3,359,000. For the 24-week period ended June 14, 1997, the Company charged
approximately $388,000 of losses and expenses against the 1995 reserve.
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable as of December 30, 1995, December 28, 1996,
and June 14, 1997 consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Notes receivable from distributors, net......... $ 3,428 $ 3,772 $ 3,568
Trade accounts receivable....................... 20,394 23,860 20,706
Less allowance for doubtful accounts............ (9,349) (8,680) (6,668)
-------- -------- --------
14,473 18,952 17,606
Less current portion............................ (13,918) (18,519) (17,255)
-------- -------- --------
Noncurrent accounts and notes receivable,
net...................................... $ 555 $ 433 $ 351
======== ======== ========
</TABLE>
Notes receivable from distributors are due in varying amounts over periods
of up to ten years and bear interest at stated rates from 0% to 16.25%. The
interest rates on notes receivable related to distributorship financing were 10%
for 1994 and 1995 and 13.2% for 1996. The notes are payable over an eight-year
amortization schedule with a balloon payment at the end of year five. The notes
are secured by certain distributor assets and guarantees. The Company has an
agreement with a financial institution to sell receivables from distributors.
The proceeds under this agreement for the years ended December 31, 1994,
December 30, 1995, and December 28, 1996 were $12,336,000, $4,422,000, and
$335,000, respectively, and are included in cash flows from operating activities
in the accompanying statements of cash flows. The Company has guaranteed the
repayment of certain amounts of these receivables. As of December 28, 1996, the
Company's contingent liability is yet to be determined; management believes that
the ultimate amount of the Company's guaranteed repayment will not have a
material effect on the financial position or results of operations.
Previously, the Company guaranteed certain of the distributor financing
with the financial institution discussed above which gave rise to the note
payable discussed in Note 4. As of June 14, 1997, the Company has recognized a
note payable of $7,983,000 related primarily to defaulted notes from
distributors. The Company also has potential contingent liability to the
financial institution for guaranteed debt. Subsequent to June 14, 1997, the
Company has reached an agreement with the financial institution whereby the
Company will pay $10,000,000 in full satisfaction of the note payable and the
contingent liability.
Subject to certain conditions, the Company is obligated to repurchase, for
either cash or a note, distributorships or distributorship assets from certain
distributors at a multiple of 3.5 times the amount of the average annual net
cash flow of the distributorship, measured over the preceding three years. This
obligation relates only to those distributors who have signed the 1997
distributor agreement and have been in full compliance, as defined in the 1997
distributor agreement, for the previous three years. As of June 14, 1997, 17 of
the Company's distributors had signed the new agreement. Consequently, the
Company will not be required to repurchase distributorships pursuant to this
agreement until 2000.
F-10
<PAGE> 112
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Long-term debt as of December 30, 1995, December 28, 1996, and June 14,
1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Senior credit agreement..................................... $ 0 $ 8,896 $ 8,938
Less current portion of senior credit agreement........... 0 (1,533) (1,803)
------- ------- -------
Long-term portion of senior credit agreement......... 0 7,363 7,135
Term loan from TFH.......................................... 0 59,828 59,828
Accrued interest due to TFH................................. 0 2,249 6,192
Subordinated loan; interest at 13%.......................... 7,500 0 0
Senior term loan............................................ 48,178 0 0
Less current portion of senior term loan.................. (8,125) 0 0
------- ------- -------
Long-term portion of senior term loan................ 40,053 0 0
6.75% Taylor County, Florida, industrial development revenue
bonds; payable in five annual installments beginning
September 1, 2000, secured by property with a net book
value of $5,419 and $4,968 in 1995 and 1996,
respectively.............................................. 5,800 5,800 5,800
6.5% Industrial Development Board of the County of Knox,
Tennessee, industrial development revenue bonds; payable
in five equal annual installments beginning October 1,
2005, secured by property with a net book value of $7,118
and $6,468 in 1995 and 1996, respectively................. 4,200 4,200 4,200
------- ------- -------
Long-term industrial development revenue bonds....... 10,000 10,000 10,000
Note payable under guarantee obligations.................... 0 7,192 7,983
Capital lease and other debt obligations; secured by
computers, office equipment, and vending machines......... 1,619 351 336
Less current portion of capital lease obligations......... (288) (24) (25)
------- ------- -------
Long-term portion of capital lease obligations....... 1,331 327 311
------- ------- -------
Long-term debt....................................... $58,884 $86,959 $91,449
======= ======= =======
</TABLE>
On August 30, 1996, the Company entered into a new senior credit agreement
(the "Senior Credit Agreement") providing for a revolving loan, letter-of-credit
accommodations, a term loan, and additional equipment loans. The Senior Credit
Agreement matures August 30, 1999 and contains a provision for the renewal of
the agreement from year to year thereafter, unless sooner terminated pursuant to
the terms of the agreement. According to the terms of the agreement, the
maturity date of all outstanding revolving loans, letter-of-credit
accommodations, term loans, or equipment loans is the earlier of the provision's
specific date or the maturity of the Senior Credit Agreement, as defined.
The revolving loan is based on 85% of all eligible accounts, plus 50% of
the value of eligible inventory, less any reserves determined to be appropriate
by the lender, all as defined. Interest is payable on the revolving loan at a
rate of 1.375% above the prime rate of interest. The maximum borrowing amount
under the revolving loan and the letter-of-credit accommodations is $17,000,000.
Standby letters of credit in the amount of $3,036,000 and $2,799,000 were
outstanding under the revolving loan as of December 28, 1996 and June 14, 1997,
respectively. At December 28, 1996 and June 14, 1997, there were no outstanding
balances other than the letters of credit under the revolving loan.
At December 28, 1996, the term loan was evidenced by three promissory notes
in the total amount of $8,896,000. The promissory notes bear interest at a rate
of 1.625% above the prime rate of interest (9.875% at
F-11
<PAGE> 113
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 28, 1996). One promissory note matures July 31, 2001, and two
promissory notes mature September 30, 2003. All scheduled maturity dates are
subject to the August 30, 1999 maturity of the Senior Credit Agreement if not
extended.
The Senior Credit Agreement, as amended, requires the Company to maintain
certain financial ratios relating to working capital and tangible net worth, as
defined. The Senior Credit Agreement also restricts the Company in a number of
areas, including, but not limited to, paying dividends, incurring additional
indebtedness, certain investment activities, and capital expenditures. As of
December 28, 1996, the Company was in compliance with all financial ratios and
restrictive covenants.
Until August 30, 1996, the Company had a senior term loan (the "Senior Term
Loan") pursuant to a credit agreement (the "Credit Agreement") dated June 3,
1988, as amended June 6, 1990, May 13, 1993, and December 31, 1994, between the
Company and a bank group. The interest on these loans was at either a base rate
plus 1.5% per annum or a Eurodollar rate, as defined (10.25% at December 30,
1995). At December 30, 1995, $8,000,000 in borrowings under the revolving line
of credit and standby letters of credit in the amount of approximately
$3,330,000 were outstanding under the Credit Agreement. In 1996, the Company
recorded a nonrecurring charge of $3,793,000 related to the restructuring.
The Company used the proceeds of the Senior Credit Agreement to pay down
the balance of the Senior Term Loan and revolving loans to approximately
$52,328,000, inclusive of accrued interest. As part of the restructuring, TFH
purchased the Senior Term Loan and revolving loans as well as the $7,500,000
subordinated loan. The Company will continue to carry both obligations as loans
from TFH at the face amount of each obligation. Under the terms of the agreement
with TFH, the Company will accrue, but not pay, interest at a rate of 13% on
these obligations. Principal and interest on the obligations will be due 30 days
after the maturity date of the Senior Credit Agreement, subject to any extension
of the Senior Credit Agreement. The debt to TFH is subordinate to all debt under
the Senior Credit Agreement.
The Company has an agreement with a financial institution to sell
receivables from distributors (Note 3) and receivables relating to vending
machine leases (Note 5). On August 30, 1996, the Company amended its agreement
with the financial institution relating to the Company's guaranty obligation for
receivables sold. The new agreement establishes a note payable (the "Note
Payable") for the Company's guaranty obligations related to failed distributors
or unpaid notes. When a sold receivable becomes the responsibility of the
Company, as defined by the agreement, the amount of the obligation is added to
the Note Payable balance carried on the Company's balance sheet. The Company
will make payments applied to interest on the Note Payable in the amount of
$50,000 per month through August 30, 1999. The Company will then begin making
principal payments on the balance of the Note Payable. The principal payments
will continue through October 31, 2003.
The scheduled maturities of all company debt obligations as of December 28,
1996 are $1,557,000 in 1997, $1,662,000 in 1998, $58,560,000 in 1999, $2,552,000
in 2000, $10,214,000 in 2001, and $11,722,000 in the years thereafter.
5. SALE OF VENDING MACHINE LEASES
The Company supplies vending machines to certain distributors under
sales-type and operating leases. During December 1994, the Company entered into
an agreement to periodically sell to a financial institution, with limited
recourse, the revenue stream related to sales-type leases and to obtain
long-term financing secured by the revenue stream related to operating leases.
The proceeds under this agreement during 1994, 1995, and 1996 were $5,040,000,
$2,402,000, and $300,000, respectively, which represent the present value of the
future lease payments using a discount rate of 12.6% in 1994 and 13.2% in 1995
and 1996. This amount is included in cash flows from financing activities in the
accompanying statements of cash flows. The portion of the proceeds relating to
operating leases is classified as other long-term obligations and will be repaid
over the
F-12
<PAGE> 114
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
operating lease term or through the sale of the vending machines to the
distributors using sales-type lease arrangements. At December 30, 1995 and
December 28, 1996, there were approximately $220,000 and $331,000, respectively,
of other long-term obligations, which are securitized by operating lease
payments. Under the limited recourse provisions of the agreement, the Company is
contingently liable for 50% of the sales-type leases sold. See total contingent
liability for all receivables sold in Note 3.
6. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," and files a consolidated federal income tax
return with TFH.
The components of the deferred tax assets and liabilities as of December
30, 1995 and December 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant, and equipment......................... $ 6,373 $ 6,113
Other.................................................. 168 0
-------- --------
Total deferred tax liabilities.................... 6,541 6,113
-------- --------
Deferred tax assets:
Operating loss carryforwards........................... (12,012) (17,569)
Restructuring reserves................................. (2,516) (1,310)
Accounts and notes receivable.......................... (3,811) (4,280)
Pensions and employee benefits......................... (2,769) (2,819)
Workers' compensation.................................. (714) (601)
Discount on industrial development revenue bonds....... (712) (647)
Other.................................................. (2,839) (965)
-------- --------
Total deferred tax assets......................... (25,373) (28,191)
-------- --------
Net deferred tax assets.................................. (18,832) (22,078)
Less valuation allowance................................. 18,832 22,078
-------- --------
Net deferred tax assets............................. $ 0 $ 0
======== ========
</TABLE>
The Company has operating loss carryforwards of approximately $45,000,000
which begin to expire in 2009.
The provision for income taxes consisted of the following as of December
31, 1994, December 30, 1995, and December 28, 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes:
Current....................................... $ 0 $ (400) $ 0
Deferred...................................... 436 0 0
State income taxes:
Current....................................... 0 0 0
Deferred...................................... 64 0 0
-------- -------- --------
Provision for income taxes...................... $ 500 $ (400) $ 0
======== ======== ========
</TABLE>
F-13
<PAGE> 115
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended December 31, 1994, December 30, 1995, and December 28,
1996, the provision for income taxes at the Company's effective rate differed
from the provision (benefit) for income taxes at the statutory rate, as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Income tax benefit at federal statutory rate.... $ (86) $ (6,263) $ (3,763)
State income taxes, net of federal effect....... (9) (737) (443)
Change in valuation allowance................... 0 6,886 3,246
Alternative minimum tax carrybacks.............. 0 (500) 0
Intangibles amortization........................ 347 347 347
Other........................................... 248 (133) 613
-------- -------- --------
Benefit for income taxes...................... $ 500 $ (400) $ 0
======== ======== ========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has two noncontributory defined benefit retirement plans (the
"Hourly Plan" and the "Salaried Plan") which cover substantially all full-time
employees who are at least 21 years of age. The Company also has an unqualified
pension plan ("Unqualified Plan") covering only certain salaried employees. The
plans provide for payment of monthly benefits to participants upon their
reaching normal retirement dates. Benefit amounts are determined by a benefit
formula which considers length of service and average salary for the Salaried
Plan and the Unqualified Plan and length of service multiplied by a fixed rate,
as determined by the Company, for the Hourly Plan. The pension cost for the
Hourly Plan and the Salaried Plan is funded at amounts equal to the minimum
funding requirements of the Employee Retirement Income Security Act of 1974.
Assets of the Hourly Plan and the Salaried Plan include common stocks, U.S.
government securities, and corporate bonds. The Unqualified Plan is not funded.
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheet as of December 28, 1996 (in
thousands):
<TABLE>
<CAPTION>
SALARIED HOURLY UNQUALIFIED
PLAN PLAN PLAN
----------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested...................................... $ 23,589 $ 16,749 $ 155
Nonvested................................... 339 138 55
-------- -------- --------
Accumulated benefit obligation................ 23,928 16,887 210
Effect of projected future compensation
levels...................................... 5,273 0 30
-------- -------- --------
Projected benefit obligation................ 29,201 16,887 240
Plan assets at fair value..................... (28,525) (17,145) 0
Unrecognized prior service costs.............. (2,459) 2,003 (50)
Unrecognized net gain......................... 3,576 1,496 884
-------- -------- --------
Accrued pension costs....................... $ 1,793 $ 3,241 $ 1,074
======== ======== ========
</TABLE>
F-14
<PAGE> 116
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs for the plans for the years ended December 31,
1994, December 30, 1995, and December 28, 1996 included the following components
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Service cost of benefits earned during the
period........................................... $ 1,250 $ 1,158 $ 1,077
Interest cost on projected benefit obligation...... 3,045 3,359 3,269
Actual return on assets............................ 703 (9,819) (4,798)
Amortization of prior service costs................ 50 0 880
Net amortization and deferral...................... (4,179) 6,342 464
Settlement gain.................................... 0 (166) 0
------- ------- -------
Net periodic pension costs....................... $ 869 $ 874 $ 892
======= ======= =======
</TABLE>
The rate of increase in future compensation levels and the expected
long-term rate of return on assets used in determining the actuarial present
value of the projected benefit obligation were 5% and 9%, respectively, as of
December 31, 1994, December 30, 1995, and December 28, 1996. The discount rates
used in determining the actuarial present value of the projected benefit
obligation for December 31, 1994, December 30, 1995, and December 28, 1996 were
7%, 7%, and 7.5%, respectively.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," the Company recorded as accrued pension cost an additional minimum
pension liability adjustment of $717,000 as of December 31, 1994, representing
the amount by which the accumulated benefit obligation exceeded the fair value
of plan assets plus accrued amounts previously recorded. The amount in excess of
previously unrecognized prior service cost was recorded as a reduction of
shareholders' equity in the amount of $717,000 at December 31, 1994. There was
no additional minimum pension liability at December 30, 1995 and December 28,
1996.
The Company also has a defined contribution plan which covers substantially
all employees who have completed up to six months of service. The Company may
match a portion of an employee's contributions up to a maximum amount. For the
years ended December 31, 1994, December 30, 1995, and December 28, 1996, the
Company contributed approximately $141,000, $130,000, and $133,000,
respectively, to this plan.
During 1995, the Company offered an early retirement incentive plan to
certain members of the Hourly and Salaried Plans. Certain special benefits were
offered to eligible employees, and lump-sum payments were paid out of the
Salaried Plan. As a result, the Company recognized a pension settlement gain of
$166,000 in accordance with SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits."
There was no early retirement incentive plan subsequent to 1995.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for
certain retired employees. The Company may provide certain health care and life
insurance benefits for employees electing early retirement in the future until
they reach normal retirement age. The liability for these benefits is not
funded. The Company accounts for these benefits in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
F-15
<PAGE> 117
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the accumulated benefit obligation as of December 30,
1995 and December 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Current retirees............................................ $1,939 $1,522
Active employees............................................ 394 392
------ ------
Accumulated benefit obligation............................ $2,333 $1,914
Unrecognized net gain....................................... 73 328
------ ------
Accrued postretirement benefit cost....................... $2,406 $2,242
====== ======
</TABLE>
Net costs of the plan for the years ended December 31, 1994, December 30,
1995, and December 28, 1996 included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service cost of benefits earned during the period..... $ 7 $ 5 $ 4
Interest cost on projected benefit obligation......... 93 123 153
------ ------ ------
Net postretirement benefit costs.................... $ 100 $ 128 $ 157
====== ====== ======
</TABLE>
A 7% annual rate of increase in the per capita cost of covered health care
benefits is assumed for all future years for certain grandfathered retirees; for
all other current and future retirees, no increase was assumed due to a fixed
payment schedule. A 1% increase in the assumed health care cost trend rate year
would increase the accumulated postretirement benefit obligation by 4% as of
December 28, 1996 and would increase the 1996 expense by 4.2%. The weighted
average discount rates used in determining the accumulated postretirement
benefit obligation were 7%, 7%, and 7.5% as of December 31, 1994, December 30,
1995, and December 28, 1996, respectively.
9. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases vehicles and warehouse space under noncancelable
operating leases. Noncancelable future minimum operating lease commitments as of
December 28, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $1,794
1998........................................................ 1,292
1999........................................................ 851
2000........................................................ 711
2001........................................................ 310
Thereafter.................................................. 64
------
$5,022
======
</TABLE>
The rental expense for all operating leases for the years ended December
31, 1994, December 30, 1995, and December 28, 1996 was approximately $3,711,000,
$3,389,000, and $2,914,000, respectively.
LITIGATION
The Company is a party to a number of claims and lawsuits incidental to its
business. In the opinion of management, after consultation with outside counsel,
the ultimate outcome of these matters, in the aggregate, will not have a
material adverse effect on the financial position or results of operations of
the Company.
F-16
<PAGE> 118
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................... 1
Risk Factors............................... 14
The Exchange Offer......................... 22
Capitalization............................. 30
Selected Historical Financial Data......... 31
Selected Unaudited Pro Forma Financial
Data..................................... 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 36
Business................................... 45
Management................................. 56
Security Ownership of Management and
Certain Beneficial Owners................ 61
Certain Transactions....................... 62
Description of Other Senior Indebtedness... 63
Description of the Notes................... 64
Description of Capital Stock............... 95
Certain United States Federal Income Tax
Consequences............................. 97
Plan of Distribution....................... 97
Legal Matters.............................. 98
Independent Public Accountants............. 98
Available Information...................... 98
Index to Financial Statements.............. F-1
</TABLE>
============================================================
============================================================
[TOM'S LOGO]
TOM'S FOODS INC.
OFFER TO EXCHANGE UP TO $60,000,000
AGGREGATE PRINCIPAL AMOUNT
OF ITS 10 1/2% SENIOR SECURED
NOTES DUE 2004 FOR ALL
OF ITS OUTSTANDING
10 1/2% SENIOR SECURED
NOTES DUE 2004
--------------------------------
PROSPECTUS
--------------------------------
------------------------
, 1997
============================================================
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (Section 102) allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his/her fiduciary duty as a director, except in the case where the director
breached his/her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. The Restated Certificate of
Incorporation of the Company contains a provision which eliminates directors'
personal liability as set forth above.
The Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes the Company to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
The Company's By-Laws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by law. The Company's By-Laws also
permit it to secure insurance on behalf of any person it is required to or
permitted to indemnify for any liability arising out of his or her actions in
such capacity, regardless of whether the By-Laws would permit indemnification.
The Company maintains liability insurance for its directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
1 Purchase Agreement between PaineWebber Incorporated and
Tom's Foods Inc., dated October 8, 1997
3.1 Second Restated Certificate of Incorporation of Tom's Foods
Inc., as amended, and Certificate of Designations of the
Preferred Stock
3.2 By-Laws of Tom's Foods Inc.
4 Indenture
5.1* Opinion of McDermott, Will & Emery regarding legality
10.1 Registration Rights Agreement among PaineWebber Incorporated
and Tom's Foods Inc. dated October 14, 1997
10.2 Amended and Restated Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as Lender
and Tom's Foods Inc. as Borrower dated as of October 14,
1997
10.3 Guarantee from Tom's Foods Capital Corporation to Congress
Financial Corporation (Southern), dated August 30, 1996
10.4 Confirmation and Acknowledgement of Guarantee and General
Security Agreement from Tom's Foods Capital Corporation to
Congress Financial Corporation (Southern), dated October 14,
1997
10.5* Industrial Revenue Bond for Knox County, Tennessee
10.6* Industrial Revenue Bond for Taylor County, Florida
10.7 Intercreditor Agreement between Congress Financial
Corporation (Southern) and IBJ Schroder Bank & Trust
Company, dated October 14, 1997
10.8 Form of Tom's Foods Inc. 1997 Distributor Agreement
</TABLE>
II-1
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
10.9 Subordination Agreement between IBJ Schroder Bank & Trust
Company and TFH Corp., dated October 14, 1997
10.10 Guarantee from TFH Corp. to Congress Financial Corporation
(Southern), dated August 30, 1996
10.11 Confirmation and Acknowledgement of Guarantee and General
Security Agreement from TFH Corp. to Congress Financial
Corporation (Southern) dated October 14, 1997
12 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
23.1 Consent of Arthur Andersen LLP
23.2 Consent of McDermott, Will & Emery (see Exhibit 5.1 above)
24 Power of Attorney (included with the signature page to the
Registration Statement)
25* Statement of Eligibility of Trustee
27.1 Financial Data Schedule
27.2 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Securities Brokers and Dealers, Commercial
Banks, Trust Companies and Other Nominees
99.4 Form of Letter to Clients
99.5 Report of Independent Public Accountants on Financial
Statement Schedule
</TABLE>
- - -------------------------
* To be filed by amendment.
(b) Financial Statement Schedule:
Schedule 1 -- Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registrant Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts of events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this 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) may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the change in
volume represents no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement); and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) 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.
II-2
<PAGE> 121
(2) 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 Registrant undertakes that such reoffering prospectus will
contain the information called for by an 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.
(3) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities 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 this Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20 above, 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 Securities 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
in connection with the securities being registered, the Registrant will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(5) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents as first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
(6) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject to and
included in this Registration Statement when it became effective.
II-3
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Columbus, Georgia on
October 27, 1997.
TOM'S FOODS INC.
By /s/ ROLLAND G. DIVIN
------------------------------------
Rolland G. Divin
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Rolland G. Divin and Stanley H. Meadows
and each of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities (including his or her capacity
as a director and/or officer of Tom's Foods Inc.) to sign any or all amendments
(including post-effective amendments) to this Registration Statement and to sign
a Registration Statement pursuant to Section 462(b) of the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROLLAND G. DIVIN President, Chief Executive Officer October 27, 1997
- - --------------------------------------------- and Director (Principal Executive
Rolland G. Divin Officer)
/s/ S. ALBERT GASTON Senior Vice President and Chief October 27, 1997
- - --------------------------------------------- Financial Officer (Principal
S. Albert Gaston Financial and Accounting Officer)
/s/ MICHAEL E. HEISLEY Director October 27, 1997
- - ---------------------------------------------
Michael E. Heisley
/s/ STANLEY H. MEADOWS Assistant Secretary and Director October 27, 1997
- - ---------------------------------------------
Stanley H. Meadows
/s/ THOMAS C. MATTICK Director October 27, 1997
- - ---------------------------------------------
Thomas C. Mattick
/s/ EMILY HEISLEY STOECKEL Director October 27, 1997
- - ---------------------------------------------
Emily Heisley Stoeckel
/s/ ANDREW C. G. SAGE II Director October 27, 1997
- - ---------------------------------------------
Andrew C. G. Sage II
</TABLE>
II-4
<PAGE> 123
SCHEDULE 1
TOM'S FOODS INC.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BALANCE AT CHARGED TO END OF
BEGINNING COST AND CHARGED TO THE
OF THE PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
------------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1994................................. 3,875 1,818 5,693
1995................................. 5,693 4,315 269(A) 928(B) 9,349
1996................................. 9,349 444 523(A) 1,636(B) 8,680
</TABLE>
- - ---------------
(A) Represents amounts recovered.
(B) Represents amounts charged against the reserve.
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- - ------- ----------- ------------
<S> <C> <C>
1 Purchase Agreement between PaineWebber Incorporated and
Tom's Foods Inc., dated October 8, 1997
3.1 Second Restated Certificate of Incorporation of Tom's Foods
Inc., as amended, and Certificate of Designations of the
Preferred Stock
3.2 By-Laws of Tom's Foods Inc.
4 Indenture
5.1* Opinion of McDermott, Will & Emery regarding legality
10.1 Registration Rights Agreement among PaineWebber Incorporated
and Tom's Foods Inc. dated October 14, 1997
10.2 Amended and Restated Loan and Security Agreement by and
between Congress Financial Corporation (Southern) as Lender
and Tom's Foods Inc. as Borrower dated as of October 14,
1997
10.3 Guarantee from Tom's Foods Capital Corporation to Congress
Financial Corporation (Southern), dated August 30, 1996
10.4 Confirmation and Acknowledgement of Guarantee and General
Security Agreement from Tom's Foods Capital Corporation to
Congress Financial Corporation (Southern), dated October 14,
1997
10.5* Industrial Revenue Bond for Knox County, Tennessee
10.6* Industrial Revenue Bond for Taylor County, Florida
10.7 Intercreditor Agreement between Congress Financial
Corporation (Southern) and IBJ Schroder Bank & Trust
Company, dated October 14, 1997
10.8 Form of Tom's Foods Inc. 1997 Distributor Agreement
10.9 Subordination Agreement between IBJ Schroder Bank & Trust
Company and TFH Corp., dated October 14, 1997
10.10 Guarantee from TFH Corp. to Congress Financial Corporation
(Southern), dated August 30, 1996
10.11 Confirmation and Acknowledgement of Guarantee and General
Security Agreement from TFH Corp. to Congress Financial
Corporation (Southern) dated October 14, 1997
12 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges
23.1 Consent of Arthur Andersen LLP
23.2 Consent of McDermott, Will & Emery (see Exhibit 5.1 above)
24 Power of Attorney (included with the signature page to the
Registration Statement)
25* Statement of Eligibility of Trustee
27.1 Financial Data Schedule
27.2 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Securities Brokers and Dealers, Commercial
Banks, Trust Companies and Other Nominees
99.4 Form of Letter to Clients
99.5 Report of Independent Public Accountants on Financial
Statement Schedule
</TABLE>
- - -------------------------
* To be filed by amendment.
(b) Financial Statement Schedule:
Schedule 1 -- Valuation and Qualifying Accounts
<PAGE> 1
Exhibit 1
TOM'S FOODS INC.
$60,000,000
10-1/2 SENIOR SECURED NOTES DUE NOVEMBER 1, 2004
PURCHASE AGREEMENT
------------------
October 8, 1997
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Tom's Foods Inc., a Delaware corporation (the "Company"), hereby confirms
its agreement with you (the "Initial Purchaser"), as set forth below.
1. The Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the Initial Purchaser $60,000,000
aggregate principal amount of its 10-1/2 % Senior Secured Notes due November 1,
2004 (the "Notes"). The Notes are to be issued under an indenture (the
"Indenture") dated as of October 14, 1997 between the Company and IBJ Schroder
Bank & Trust Company, as trustee (the "Trustee").
The Notes will be offered and sold to you without being registered under
the Securities Act of 1933, as amended (the "Act"), in reliance on exemptions
therefrom.
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum dated September 18, 1997 (the "Preliminary
Memorandum") and a final offering memorandum dated October 8, 1997 (the
"Final Memorandum"; the Preliminary Memorandum and the Final Memorandum each
herein being referred to as a "Memorandum") setting forth or including a
description of the terms of the Notes, the terms of the offering of the Notes,
a description of the Company and any material developments re-
<PAGE> 2
-2-
lating to the Company occurring after the date of the most recent historical
financial statements included therein.
The Notes are being offered in connection with the Company's refinancing
of certain existing indebtedness, including (i) term loans outstanding under
the Loan and Security Agreement dated as of August 30, 1996 by and between
Congress Financial Corporation (Southern)("Congress") and the Company (the
"Existing Credit Agreement"), (ii) indebtedness owed to STI Credit Corporation
(the "STI Debt") and (iii) a portion of the indebtedness owed to TFH Corp.
(the "TFH Debt"). Concurrently with the offering of the Notes, the Company
will issue approximately $7,000,000 aggregate liquidation preference of its
Class A Preferred Stock and approximately $21,737,000 aggregate liquidation
preference of its Class B Preferred Stock for the remainder of the TFH Debt
and will enter into an Amended and Restated Loan and Security Agreement with
Congress (the "New Credit Agreement") to provide for its on-going working
capital needs.
The Initial Purchaser and its direct and indirect transferees of the Notes
will be entitled to the benefits of a Registration Rights Agreement (the
"Registration Rights Agreement"), pursuant to which the Company will agree,
among other things, to file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
registering the Exchange Notes (as defined in the Registration Rights
Agreement) under the Act. This Agreement, the Notes, the Exchange Notes, the
Private Exchange Notes (as defined in the Registration Rights Agreement), the
Indenture, the Security Documents (as defined in the Indenture) and the
Registration Rights Agreement are referred to herein as the "Operative
Documents."
2. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with the Initial Purchaser that:
A. Neither the Preliminary Memorandum as of the date thereof nor the
Final Memorandum nor any amendment or supplement thereto as of the date
thereof and at all times subsequent thereto up to the Closing Date (as
defined in Section 3 below) contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties set
forth in this Section 2(a) do not apply to statements or omissions made in
reliance upon and in conformity with information relating to the Initial
Purchaser furnished to the Company in writing by the Initial Purchaser
expressly for use in the Preliminary Memorandum, the Final Memorandum or any
amendment or supplement thereto.
<PAGE> 3
-3-
B. As of the Closing Date, the Company will have the authorized,
issued and outstanding capitalization set forth in the Final Memorandum; all
of the outstanding shares of capital stock of the Company have been,
or as of the Closing Date will be, duly authorized and validly issued, are
or, as of the Closing Date, will be fully paid and nonassessable and were not
or, as of the Closing Date will not be, issued in violation of any preemptive
or similar rights; all of the outstanding shares of capital stock of the
Company will be free and clear of all liens, encumbrances, equities and
claims or restrictions on transferability (other than those imposed by the
Act and the securities or "Blue Sky" laws of certain jurisdictions) or
voting; except as set forth in the Final Memorandum, there are no (i)
options, warrants or other rights to purchase, (ii) agreements or other
obligations to issue or (iii) other rights to convert any obligation into, or
exchange any securities for, shares of capital stock of or ownership
interests in the Company outstanding. Except as set forth in the Final
Memorandum, the Company does not own, directly or indirectly, any shares of
capital stock or any other equity or long-term debt securities or have any
equity interest in any corporation, firm, partnership, joint venture or other
entity.
C. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own its properties and conduct its business
as now conducted and as described in the Final Memorandum; the Company is
duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions where the ownership or leasing of its properties or
the conduct of its business requires such qualification, except where the
failure to be so qualified would not, individually or in the aggregate, have
a material adverse effect on the properties, business, condition (financial
or otherwise), or results of operations of the Company (any such event, a
"Material Adverse Effect").
D. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Operative
Documents and to consummate the transactions contemplated thereby.
E. This Agreement has been duly and validly authorized, executed and
delivered by the Company.
F. The Indenture has been duly and validly authorized by the Company
and, when duly executed and delivered in accordance with its terms
(assuming the due execution and delivery thereof by the Trustee), will be the
legally valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except that the enforcement thereof may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or
<PAGE> 4
-4-
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such enforcement is
considered in a proceeding in equity or at law). The Indenture meets the
requirements for qualification under the Trust Indenture Act of 1939, as
amended (the "TIA").
G. The Notes have been duly and validly authorized for issuance and
sale to the Initial Purchaser by the Company pursuant to this Agreement
and, when issued and authenticated in accordance with the terms of the
Indenture and delivered against payment therefor in accordance with the terms
hereof, will be the legally valid and binding obligations of the Company,
enforceable against the Company in accordance with its terms and entitled to
the benefits of the Indenture, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity and the discretion of the
court before which any proceeding therefor may be brought (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
H. The Exchange Notes and the Private Exchange Notes have been duly
and validly authorized for issuance by the Company and, when issued and
authenticated in accordance with the terms of the Indenture, will be the
legally valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms and entitled to the benefits of the
Indenture, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
I. The Registration Rights Agreement has been duly and validly
authorized by the Company and, when executed and delivered by the Company
(assuming due authorization, execution and delivery by the Initial
Purchaser), will constitute a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
that (A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any proceeding
therefor may be brought (regardless of whether such enforcement is considered
in a proceeding in equity or at law) and (B) any rights to indemnity or
contribution thereunder may be limited by federal and state securities laws
and public policy considerations.
<PAGE> 5
-5-
J. No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the
performance of this Agreement or the other Operative Documents, or the
consummation by the Company of the transactions contemplated hereby or by the
other Operative Documents, except such as have been obtained and such as may
be required under state securities or "Blue Sky" laws in connection with the
purchase and resale of the Notes by the Initial Purchaser or by the federal
and state securities laws in connection with the obligations under the
Registration Rights Agreement. The Company is not (i) in violation of its
certificate of incorporation or bylaws, (ii) in breach or violation of any
statute, judgment, decree, order, rule or regulation applicable to the
Company or any of its properties or assets, except for any such breach or
violation which would not, individually or in the aggregate, have a Material
Adverse Effect, or (iii) in breach of or default under (nor has any event
occurred which, with notice or passage of time or both, would constitute a
default under) or in violation of any of the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which the Company is a party or to which any of its properties
or assets are subject (collectively, "Contracts"), except for any such
breach, default, violation or event which would not, individually or in the
aggregate, have a Material Adverse Effect.
K. The execution, delivery and performance by the Company of each of
the Operative Documents and the consummation by the Company of the
transactions contemplated thereby, and the fulfillment of the terms thereof,
will not conflict with or constitute or result in a breach of or a default
under (or an event which with notice or passage of time or both would
constitute a default under) or violation of any of (i) the terms or
provisions of any Contract, except for any such conflict, breach, violation,
default or event which would not, individually or in the aggregate, have a
Material Adverse Effect, (ii) the certificate of incorporation or bylaws of
the Company, or (iii) (assuming compliance with all applicable federal and
state securities or "Blue Sky" laws and assuming the accuracy of the
representations and warranties of the Initial Purchaser in Section 8 hereof)
any statute, judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to the Company or any of its
properties or assets, except for any such conflict, breach or violation which
would not, individually or in the aggregate, have a Material Adverse Effect.
L. Each of the Indenture, the Notes, the Exchange Notes and the
Registration Rights Agreement conform in all material respects to the
description thereof in the Final Memorandum.
M. The audited financial statements of the Company included in the
Final Memorandum present fairly the financial position, results of operations
and
<PAGE> 6
-6-
cash flows of the Company at the dates and for the periods to which they
relate and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise stated therein,
and comply as to form in all material respects with the applicable accounting
requirements of the Act and the rules and regulations thereunder. The
summary and selected financial and statistical data included in the Final
Memorandum present fairly in all material respects the information shown
therein and have been prepared and compiled on a basis consistent with the
audited financial statements included therein, except as otherwise stated
therein, and comply as to form in all material respects with the applicable
accounting requirements of the Act and the rules and regulations thereunder.
Arthur Andersen LLP is an independent public accounting firm as required by
the Act and the rules and regulations thereunder.
N. Except as described in the Final Memorandum, there is not pending
or, to the best knowledge of the Company, threatened, any action, suit,
proceeding, inquiry or investigation to which the Company is a party, or to
which its properties or assets are subject, before or brought by any court,
arbitrator or governmental agency or body, which, if determined adversely to
the Company, would have a Material Adverse Effect, or which seeks to
restrain, enjoin, prevent the consummation of or otherwise challenge the
issuance or sale of the Notes to be sold hereunder or the consummation of the
other transactions described in the Final Memorandum.
O. The Company owns or possesses adequate licenses or other rights
to use all patents, trademarks, service marks, trade names, copyrights
and know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, system or procedures
(collectively, the "Intellectual Property") necessary to conduct its business
as described in the Final Memorandum, and the Company has not received any
notice of infringement of or conflict with (or knows of no such infringement
of or conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how which, if such
assertion of infringement or conflict were sustained, would, individually or
in the aggregate, have a Material Adverse Effect.
P. The Company possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made
or will have made all declarations and filings with, all federal, state,
local and other governmental authorities, all self-regulatory organizations
and all courts and other tribunals, presently required or necessary to own or
lease, as the case may be, and to operate its properties and to carry on its
business as described in the Final Memorandum ("Permits"), except where the
failure to obtain such Permits would not, individually or in the aggregate,
have a Material Adverse Effect; the Company has fulfilled and per-
<PAGE> 7
-7-
formed all of its material obligations with respect to such Permits and no
event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit; and the Company
has not received any notice of any proceeding relating to revocation or
modification of any such Permit, except as described in the Final Memorandum
and except where such revocation or modification would not, individually or
in the aggregate, have a Material Adverse Effect.
Q. Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described therein, (i) the Company has
not incurred any liabilities or obligations, direct or contingent, or entered
into or agreed to enter into any transactions or contracts (written or oral)
not in the ordinary course of business which liabilities, obligations,
transactions or contracts would, individually or in the aggregate, be
material to the properties, business, condition (financial or otherwise), or
results of operations of the Company (a "Material Change"), (ii) the Company
has not purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital stock,
and (iii) there has not been any change in the capital stock or long-term
indebtedness of the Company which would, individually or in the aggregate, be
a Material Change.
R. The Company has filed all necessary federal, state and foreign
income and franchise tax returns, except where the failure to so file such
returns would not, individually or in the aggregate, have a Material Adverse
Effect, and has paid all taxes shown as due thereon; and other than tax
deficiencies which the Company is contesting in good faith and for which the
Company has provided adequate reserves, there is no tax deficiency that has
been asserted against the Company that would have, individually or in the
aggregate, a Material Adverse Effect.
S. The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Company believes
to be reliable and accurate.
T. Neither of the Company nor any agent acting on its behalf has
taken or will take any action that might cause this Agreement or the sale
of the Notes to violate Regulation G, T, U or X of the Board of Governors of
the Federal Reserve System, in each case as in effect, or as the same may
hereafter be in effect, on the Closing Date.
U. The Company has good and marketable title to all real and
personal property described in the Final Memorandum as being owned by it
and good and marketable title to the leasehold estates in the real and
personal property described in
<PAGE> 8
-8-
the Final Memorandum as being leased by it free and clear of all
liens, charges, encumbrances or restrictions, except to the extent the
failure to have such title or the existence of such liens, charges,
encumbrances or restrictions would not, individually or in the aggregate,
have a Material Adverse Effect and except as described in the Final
Memorandum. All material leases, contracts and agreements to which the
Company is a party or by which it is bound are valid and enforceable against
the Company, to the knowledge of the Company are valid and enforceable
against the other party or parties thereto and are in full force and effect
with only such exceptions as would not, individually or in the aggregate,
have a Material Adverse Effect.
V. There are no legal or governmental proceedings involving or
affecting the Company or any of its properties or assets which would be
required to be described in a prospectus pursuant to the Act that are not
described in the Final Memorandum, nor are there any material contracts or
other documents which would be required to be described in a prospectus
pursuant to the Act that are not described in the Final Memorandum.
W. Except as would not, individually or in the aggregate, have a
Material Adverse Effect, (A) the Company is in compliance with and not
subject to liability under applicable Environmental Laws, (B) the Company has
made all filings and provided all notices required under any applicable
Environmental Law, and has and is in compliance with all Permits required
under any applicable Environmental Laws and each of them is in full force and
effect, (C) there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the
knowledge of the Company, threatened against the Company under any
Environmental Law, (D) no lien, charge, encumbrance or restriction has been
recorded under any Environmental Law with respect to any assets, facility or
property owned, operated, leased or controlled by the Company, (E) the
Company has not received notice that it has been identified as a potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or any
comparable state law and (F) no property or facility of the Company is (i)
listed or proposed for listing on the National Priorities List under CERCLA
or (ii) is listed in the Comprehensive Environmental Response, Compensation,
Liability Information System List promulgated pursuant to CERCLA, or on any
comparable list maintained by any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common law
and all applicable federal, state and local laws or regulations, codes, orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder, relating to pollution or the environment, including, without
limitation, laws relating to (i) emissions, dis-
<PAGE> 9
-9-
charges, releases or threatened releases of hazardous materials, into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), (ii) the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport or
handling of hazardous materials, and (iii) underground and above ground storage
tanks, and related piping, and emissions, discharges, releases or threatened
releases therefrom.
X. The Company is in material compliance with all federal, state and
local employment and labor laws, including, but not limited to, laws
relating to non-discrimination in hiring, promotion and pay of employees; no
labor dispute with employees of the Company exists or, to the knowledge of
the Company, is imminent or threatened; and the Company is not aware of any
existing, imminent or threatened labor disturbance by the employees of any of
its principal suppliers, manufacturers, distributors or contractors that
could result in a Material Adverse Effect.
Y. The Company carries insurance in such amounts and covering such
risks as is adequate for the conduct of its business and the value of its
properties. The Company has not received written notice from any insurer or
agent of such insurer that any material capital improvements or other
material expenditures will have to be made in order to continue any insurance
maintained by the Company.
Z. The Company does not have any liability for any prohibited
transaction or funding deficiency or any complete or partial withdrawal
liability with respect to any pension, profit sharing or other plan which is
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), to which the Company makes or ever has made a contribution and in
which any employee of the Company is or has ever been a participant. With
respect to such plans, the Company is in compliance in all material respects
with all applicable provisions of ERISA.
AA. The Company (i) makes and keeps books and records which are
accurate in all material respects and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial statements and
to maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D) the
reported accountability for its assets is compared with existing assets at
reasonable intervals.
BB. The Company will not be an "investment company" or "promoter" or
"principal underwriter" for an "investment company," as such terms are
<PAGE> 10
-10-
defined in the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
CC. No holder of securities, other than the Notes, of the Company
will be entitled to have such securities registered under the registration
statements required to be filed by the Company pursuant to the Registration
Rights Agreement.
DD. Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair saleable
value of the assets of the Company will exceed the sum of its stated
liabilities and identified contingent liabilities; the Company is not, nor
will the Company be, after giving effect to the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, (a) left with unreasonably small capital with which to
carry on its business as it is proposed to be conducted, (b) unable to pay
its debts (contingent or otherwise) as they mature or (c) otherwise
insolvent.
EE. Neither the Company nor its respective Affiliates (as defined in
Rule 501(b) of Regulation D under the Act) has directly, or through any
agent, (i) sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any "security" (as defined in the Act) which is or
could be integrated with the sale of the Notes in a manner that would require
the registration under the Act of the Notes or (ii) engaged in any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the Notes or
in any manner involving a public offering within the meaning of Section 4(2)
of the Act.
FF. Assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof, it is not necessary in
connection with the offer, sale and delivery of the Notes to the Initial
Purchaser in the manner contemplated by this Agreement to register any of the
Notes under the Act or to qualify the Indenture under the TIA.
GG. No securities of the Company are of the same class (within the
meaning of Rule 144A under the Act) as the Notes and listed on a national
securities exchange registered under Section 6 of the Exchange Act, or quoted
in a U.S. automated inter-dealer quotation system.
HH. The Company has not taken, nor will take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Notes.
<PAGE> 11
-11-
II. Upon execution and delivery by the Company on the Closing Date
and assuming due recording, the Mortgages (as defined in the Indenture)
will create and constitute (A) valid and enforceable mortgage liens on the
real properties and fixtures described therein (the "Real Property") and (B)
a valid and enforceable secu rity interest in such of the Mortgaged
Properties (as defined in the Mortgages collectively), other than the Real
Property, in which a security interest can be created under Article 9 (the
"UCC Property") of the Uniform Commercial Code (the "UCC") as in effect in
the state in which such Mortgaged Property is located. The Mortgages will be
in proper form under the laws of the states in which the Mortgaged Properties
encumbered thereby are located, to be accepted for recording in the counties
or other appropriate jurisdictions where such Mortgaged Properties are
located.
JJ. Upon execution and delivery by the Company on the Closing Date,
the Security Documents will create and constitute valid, enforceable and,
subject to all required filings contemplated by clause KK. below, perfected
security interests in, liens on or pledges of all of the Pledged Collateral
(as defined in the Security Documents collectively).
KK. Upon (A) execution and delivery of the Security Documents by the
Company on the Closing Date and (B) the filing of the UCC-1 financing
statements (the "Financing Statements") relating to (1) the Mortgages with
the Office of the Secretaries of State in the states of Texas, California and
Georgia and with the recorder of Navarro County, Texas, Fresno County,
California and Muscogee County, Georgia and (2) the other Security Documents
with the Office of the Secretaries of State in the states of Texas,
California and Georgia and with the recorder of Navarro County, Texas, Fresno
County, California and Muscogee County, Georgia, the security interest, lien
or pledge created by (x) the Security Documents in the Pledged Collateral
will be a perfected security interest with respect to that portion of the
Pledged Collateral in which a security interest can be perfected by filing a
financing statement, prior to all other claims or security interests therein
which may be perfected by the filing of a financing statement or by
possession, except for prior liens and encumbrances permitted by the
applicable Security Document, and (y) the Mortgages in UCC Property will be a
perfected security interest with respect to that portion of the UCC
Properties in which a security interest can be perfected by filing a
financing statement, prior to all other security interests therein which may
be perfected by filing a financing statement or by possession, except for
prior liens and encumbrances permitted by the applicable Mortgage.
LL. Each of the Security Documents has been duly and validly
authorized by the Company and, when duly executed and delivered by the
Company, will be the legally valid and binding obligation of the Company,
enforceable against it
<PAGE> 12
-12-
in accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity and the discretion of the court before
which any proceedings thereof may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law). The Security
Documents, when executed and delivered, will conform in all material respects
to the description thereof in the Final Memorandum.
MM. The Company has complied, and until the completion of the
distribution of the Notes will comply, with all of the provisions of
(including, without limitation, filing all forms required by) Section 517.075
of the Florida Securities and Investor Protection Act and regulation
3E-900.001 issued thereunder with respect to the offering and sale of the
Notes.
Any certificate signed by any officer of the Company or any Subsidiary and
delivered to the Initial Purchaser or to counsel for the Initial Purchaser
shall be deemed a representation and warranty by the Company to Initial
Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Notes. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, all of the Notes at 96.50 % of their principal
amount.
One or more certificates in definitive form for the Notes that the Initial
Purchaser has agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Initial Purchaser
requests upon notice to the Company at least 48 hours prior to the Closing
Date, shall be delivered by or on behalf of the Company to the Initial
Purchaser, against payment by or on behalf of the Initial Purchaser of the
purchase price therefor by wire transfer of immediately available funds payable
to such account or account as the Company shall specify prior to the Closing
Date, or by such means as the parties hereto shall agree prior to the Closing
Date. Such delivery of and payment for the Notes shall be made at the offices
of McDermott Will & Emery 227 West Monroe Street Chicago, Illinois, at 9:00
A.M., Chicago time, on October 14, 1997, or at such other place, time or date
as the Initial Purchaser and the Company may agree upon, such time and date of
delivery against payment being herein referred to as the "Closing Date." The
Company will make such certificate or certificates for the Notes available for
checking and packaging by the Initial Purchaser at the offices of PaineWebber
Incorporated in New York, New York or such other place as PaineWebber
Incorporated may designate, at least 24 hours prior to the Closing Date.
<PAGE> 13
-13-
4. Offering by the Initial Purchaser. The Initial Purchaser proposes to
make an offering of the Notes at the price and upon the terms set forth in the
Final Memorandum as soon as practicable after this Agreement is entered into
and as in the sole judgment of the Initial Purchaser is advisable.
5. Covenants of the Company. The Company covenants and agrees with the
Initial Purchaser that:
A. The Company will not amend or supplement the Final Memorandum or
any amendment or supplement thereto of which the Initial Purchaser and
counsel to the Initial Purchaser shall not previously have been advised and
furnished a copy for a reasonable period of time prior to the proposed
amendment or supplement and as to which the Initial Purchaser shall not have
given its consent, which consent shall not be unreasonably withheld. The
Company will promptly, upon the reasonable request of the Initial Purchaser
or counsel for the Initial Purchaser, make any amendments or supplements to
the Preliminary Memorandum or the Final Memorandum that may be necessary or
advisable in connection with the resale of the Notes by the Initial
Purchaser.
B. The Company will cooperate with the Initial Purchaser in
arranging for the qualification of the Notes for offering and sale under
the securities or "Blue Sky" laws of such jurisdictions as the Initial
Purchaser may designate and will continue such qualifications in effect for
as long as may be necessary to complete the resale of the Notes by the
Initial Purchaser; provided, however, that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction or
subject the Company to any tax in any such jurisdiction where it is not then
so subject.
C. If, at any time prior to the completion of the distribution by
the Initial Purchaser of the Notes or the Private Exchange Notes, any event
occurs or information becomes known as a result of which the Final Memorandum
as then amended or supplemented would include an untrue statement of a
material fact, or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time
to amend or supplement the Final Memorandum in order to comply with
applicable law, the Company will promptly notify the Initial Purchaser
thereof and will prepare, at the Company's expense, an amendment to the Final
Memorandum that corrects such statement or omission or effects such
compliance.
D. The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the
Preliminary
<PAGE> 14
-14-
Memorandum and the Final Memorandum or any amendment or supplement thereto
as the Initial Purchaser may reasonably request.
E. The Company will apply the net proceeds from the sale of the
Notes substantially as set forth under "Use of Proceeds" in the Final
Memorandum.
F. For so long as any Notes remain outstanding, the Company will
furnish to the Initial Purchaser copies of all reports and other
communications (financial or otherwise) furnished by the Company to the
Trustee or the holders of the Notes and, as soon as available, copies of any
reports or financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed.
G. Prior to the Closing Date, the Company will furnish to the
Initial Purchaser, as soon as they have been prepared by or are available
to the Company, to the extent not previously provided to the Initial
Purchasers, a copy of any unaudited interim consolidated financial statements
of the Company for any period subsequent to the period covered by its most
recent financial statements appearing in the Final Memorandum.
H. Neither the Company nor any of its Affiliates will sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of
any "security" (as defined in the Act) that could be integrated with the sale
of the Notes in a manner that would require the registration under the Act of
the Notes.
I. The Company will not engage in any form of general solicitation
or general advertising (as those terms are used in Regulation D under the
Act) in connection with the offering of the Notes or in any manner involving
a public offering within the meaning of Section 4(2) of the Act.
J. For so long as any of the Notes remain outstanding, the Company
will make available, upon request, to any holder of such Notes and any
prospective purchasers thereof the information specified in Rule 144A(d)(4)
under the Act, unless the Company is then subject to Section 13 or 15(d) of
the Exchange Act.
K. The Company will use its best efforts to (i) permit the Notes to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the NASD relating to trading in the Private Offerings,
Resales and Trading through Automated Linkages market (the "Portal Market")
and (ii) permit the Notes to be eligible for clearance and settlement through
The Depository Trust Company.
<PAGE> 15
-15-
6. Expenses. The Company agrees to pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof including all costs and expenses
incident to: (i) the printing, word processing or other production of
documents with respect to such transactions, including any costs of printing
the Preliminary Memorandum and the Final Memorandum and any amendments or
supplements thereto, and any "Blue Sky" memoranda, (ii) all arrangements
relating to the delivery to the Initial Purchaser of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company, (iv) the preparation
(including printing), issuance and delivery to the Initial Purchaser of any
certificates evidencing the Notes, (v) the qualification of the Notes under
state securities and "Blue Sky" laws, including filing fees and reasonable fees
and disbursements of counsel for the Initial Purchaser relating thereto, (vi)
the expenses of the Company in connection with any meetings with prospective
investors in the Notes, (vii) the fees and expenses of the Trustee, including
fees and expenses of its counsel and (viii) all expenses and listing fees
incurred in connection with the application for quotation of the Notes on the
PORTAL Market and (ix) any fees charged by investment rating agencies for the
rating of the Notes. If the issuance and sale of the Notes provided for herein
is not consummated because any condition to the obligations of the Initial
Purchaser set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any
failure, refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder (other than solely by reason of a default by the Initial Purchaser of
its obligations hereunder after all conditions hereunder have been satisfied in
accordance herewith, the Company will promptly reimburse the Initial Purchaser
upon demand for all out-of-pocket expenses (including fees, disbursements and
charges of Cahill Gordon & Reindel, counsel for the Initial Purchaser) that
shall have been incurred by the Initial Purchaser in connection with the
proposed purchase and sale of the Notes.
7. Conditions of the Initial Purchaser's Obligations. The obligation of
the Initial Purchaser to purchase and pay for the Notes shall, in its sole
discretion, be subject to the satisfaction or waiver of the following
conditions on or prior to the Closing Date:
A. All of the conditions contained in the New Credit Agreement to be
fulfilled or complied with prior to any borrowing under such agreement
shall have been complied with.
B. On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of McDermott, Will & Emery, counsel for the Company, in form and
substance satisfactory to counsel for the Initial Purchaser, to the effect
that:
<PAGE> 16
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(i) The Company has been duly incorporated, and is validly
existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Final Memorandum. The Company is duly
qualified as a foreign corporation and in good standing in each
jurisdiction listed on Schedule A hereto.
(ii) The authorized capital stock of the Company as set forth
in the Final Memorandum conforms to the Certificate of
Incorporation of the Company; all of the outstanding shares of
capital stock of the Company held by TFH have been duly authorized
and validly issued, are fully paid and nonassessable and were not
issued in violation of any preemptive or similar rights.
(iii) Except as set forth in the Final Memorandum, (A) no
options, warrants or other rights to purchase from the Company
shares of capital stock or ownership interests in the Company are
outstanding, (B) no agreements or other obligations of the Company
to issue, or other rights to cause the Company to convert, any
obligation into, or exchange any securities for, shares of capital
stock or ownership interests in the Company are outstanding and (C)
no holder of securities of the Company is entitled to have such
securities registered under a registration statement filed by the
Company pursuant to the Registration Rights Agreement.
(iv) The Company has all requisite corporate power and
authority to execute, deliver and perform each of its obligations
under the Operative Documents and to consummate the transactions
contemplated hereby and thereby.
(v) The Indenture has been duly and validly authorized,
executed and delivered by the Company and, (assuming the due
authorization, execution and delivery thereof by the Trustee),
constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms,
except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
The Indenture is in sufficient form for qualification under the
TIA.
<PAGE> 17
-17-
(vi) The Notes are in the form contemplated by the Indenture.
The Notes have each been duly and validly authorized, executed and
delivered by the Company and, when paid for by the Initial
Purchaser in accordance with the terms of this Agreement (assuming
the due authorization, execution and delivery of the Indenture by
the Trustee and due authentication and delivery of the Notes by the
Trustee in accordance with the Indenture), will constitute the
valid and legally binding obligations of the Company, entitled to
the benefits of the Indenture, and enforceable against the Company
in accordance with their terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought (regardless of
whether such enforcement is considered in a proceeding in equity or
at law).
(vii) The Exchange Notes and the Private Exchange Notes have
been duly and validly authorized by the Company and, when the
Exchange Notes and the Private Exchange Notes have been duly
executed and delivered by the Company in accordance with the terms
of the Registration Rights Agreement and the Indenture (assuming
the due authorization, execution and delivery of the Indenture by
the Trustee and due authentication and delivery of the Exchange
Notes and the Private Exchange Notes by the Trustee in accordance
with the Indenture), will constitute the valid and legally binding
obligations of the Company, entitled to the benefits of the
Indenture, and enforceable against the Company in accordance with
their terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(viii) The Registration Rights Agreement has been duly and
validly authorized, executed and delivered by the Company and
(assuming due authorization, execution and delivery thereof by the
Initial Purchaser), constitutes the valid and legally binding
agreement of the Company enforceable against the Company in
accordance with their terms, except that (A) the enforcement
thereof may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity
<PAGE> 18
-18-
and the discretion of the court before which any proceeding
therefor may be brought (regardless of whether such enforcement is
considered in a proceeding in equity or at law) and (B) any rights
to indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations.
(ix) This Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly and validly
authorized by the Company. This Agreement has been duly executed
and delivered by the Company.
(x) The Indenture, the Notes and the Exchange Notes conform
as to legal matters in all material respects to the descriptions
thereof contained in the Final Memorandum.
(xi) To the knowledge of such counsel, based upon
representations of the Company, no legal or governmental
proceedings are pending to which the Company is a party or to which
the property or assets of the Company is subject which would be
required under the Act to be described in a registration statement
or in a prospectus and are not described in the Final Memorandum,
or which seek to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Notes to be sold
hereunder or the consummation of the other transactions described
in the Final Memorandum under the caption "Use of Proceeds" or the
"Acquisition."
(xii) The statements in the Final Memorandum under the caption
"Certain United States Federal Tax Consequences" are accurate and
present fairly the information described therein in all material
respects. The statements made in the Final Memorandum under the
captions "Description of Other Senior Indebtedness," "Exchange
Offer; Registration Rights", insofar as they describe certain
provisions of the Credit Agreement, the Industrial Revenue Bonds
and the Registration Rights Agreement are accurate in all material
respects.
(xiii) The execution, delivery and performance of the
Operative Documents and the consummation of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance and sale of the Notes to the Initial Purchaser) will not
conflict with or constitute or result in a breach or a default
under (or an event which with notice or passage of time or both
would constitute a default under) or violation of any of (i) the
terms or provisions of any Contract identified by the Company as
material, except for any such con-
<PAGE> 19
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flict, breach, violation, default or event which would not,
individually or in the aggregate, have a Material Adverse Effect,
(ii) the certificate of incorporation or bylaws of the Company, or
(iii) (assuming compliance with all applicable state securities or
"Blue Sky" laws and assuming the accuracy of the representations
and warranties of the Initial Purchaser in Section 8 hereof) the
Delaware General Corporate Law or any New York or Federal statute,
judgment, decree, order, rule or regulation known to such counsel
to be applicable to the Company and to transactions of the type
contemplated by the Final Memorandum (but without our having made
any special investigation as to other laws and provided that such
opinion need not cover any laws or regulations to which the Company
or its affiliates may be subject as a result of the Initial
Purchaser's legal or regulatory status or the involvement of the
Initial Purchaser in such transaction), except for any such
conflict, breach or violation which would not, individually or in
the aggregate, have a Material Adverse Effect.
(xiv) To the knowledge of such counsel, no consent, approval,
authorization or order of any New York or federal governmental
authority is required for the performance of the Operative
Documents or the issuance and sale by the Company of the Notes to
the Initial Purchaser or the other transactions contemplated
hereby, except such as may be required under Blue Sky laws, as to
which such counsel need express no opinion, and those which have
previously been obtained.
(xv) The Company is not, or immediately after the sale of the
Notes to be sold hereunder and the application of the proceeds from
such sale (as described in the Final Memorandum under the caption
"Use of Proceeds") will be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(xvi) No registration under the Act of the Notes is required
in connection with the sale of the Notes to the Initial Purchaser
as contemplated by this Agreement and the Final Memorandum or in
connection with the initial resale of the Notes by the Initial
Purchaser in accordance with Section 8 of this Agreement, and prior
to the commencement of the Exchange Offer (as defined in the
Registration Rights Agreement) or the effectiveness of the Shelf
Registration Statement (as defined in the Registration Rights
Agreement), the Indenture is not required to be qualified under the
TIA, in each case assuming (i) that the purchasers who buy such
Notes in the initial resale thereof are qualified institutional
buyers as defined in Rule 144A promulgated under the Act ("QIBs")
or accredited investors as defined in Rule 501(a) (1), (2), (3) or
(7) promulgated under the Act ("Accredited Investors"), (ii) the
accuracy of the
<PAGE> 20
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Initial Purchaser's representations in Section 8 and those of
the Company contained in this Agreement regarding the absence of a
general solicitation in connection with the sale of such Notes to
the Initial Purchaser and the initial resale thereof, (iii) the due
performance by the Initial Purchaser of the agreements set forth in
Section 8 hereof and (iv) the accuracy of the representations made
by each Accredited Investor who purchases Notes in the initial
resale as set forth in the Final Memorandum.
(xvii) Neither the consummation of the transactions
contemplated by this Agreement nor the sale, issuance, execution or
delivery of the Notes will violate Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
(xviii) The New Credit Agreement has been duly authorized,
executed and delivered by the Company.
(xix) The Security Documents have been duly and validly
authorized, executed and delivered by the Company and, (assuming
the due authorization, execution and delivery thereof by the
Trustee), constitute the valid and legally binding agreements of
the Company, enforceable against the Company in accordance with its
terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles
of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(xx) The Security Documents create a valid security interest
in your favor as security for the payment of the Secured
Obligations (as defined in the Security Agreement) in all of the
Company's right, title and interest in and to all personal property
included within the definition of the term Pledged Collateral (as
defined in the Security Agreement) in which a security interest can
be granted under the uniform commercial code in the states of
Illinois, New York and California (the "Applicable Uniform
Commercial Code") (the "Code Collateral"). We have examined the
financing statement ((the "Financing Statements") to be filed in
the filing offices (the "Filing Offices") with respect to the
security interests granted to the Trustee pursuant to the Security
Agreement, and upon the filing of such Financing Statements in the
Filing Offices, and assuming that the representations made in the
Security Documents with respect to the location of the Code
Collateral and the chief executive office of the Company are and
remain true and correct: (a) all filings, registrations and
re-
<PAGE> 21
-21-
cordings necessary to perfect the security interest granted to
the Trustee under such Security Documents in respect of all Code
Collateral in which a security interest may be perfected by filing
a financing statement in the Filing Offices will have been
accomplished; and (b) the security interests granted to the Trustee
pursuant to such Security Documents in and to such Code Collateral
will be perfected to the extent that such security interests may be
perfected by filing financing statements in the Filing Offices
under the Applicable Uniform Commercial Code.
At the time the foregoing opinion is delivered, such counsel shall
additionally state that it has participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants for the Company, representatives of the Initial Purchaser and
counsel for the Initial Purchaser, at which conferences the contents of the
Final Memorandum and related matters were discussed, and, although it has not
independently verified and is not passing upon and assumes no responsibility
for the accuracy, completeness or fairness of the statements contained in the
Final Memorandum (except to the extent specified in subsection 7(b)(x) or
(xiii)), no facts have come to its attention which lead it to believe that the
Final Memorandum, on the date thereof or at the Closing Date, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such firm need express no opinion with
respect to the financial statements and related notes thereto and the other
financial data included in or excluded from the Final Memorandum). The opinion
of such counsel described in this Section shall be rendered to the Initial
Purchaser at the request of the Company and shall so state therein.
References to the Final Memorandum in this subsection (b) shall include
any amendment or supplement thereto prepared in accordance with the provisions
of this Agreement at the Closing Date.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the federal laws of the
United States, the laws of the State of New York and Delaware General Corporate
Law. Such counsel may also state that, insofar as such opinion involves
factual matters, such counsel have relied, to the extent they deem proper, upon
certificates of officers of the Company and certificates of public officials;
provided that such certificates have been provided to the Initial Purchaser.
C. You shall have received opinions (satisfactory to you and your
counsel), dated the Closing Date, from local counsel for the Company in
the States of Texas, California and Georgia, substantially in the form of
Exhibit A hereto.
<PAGE> 22
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D. The Initial Purchaser shall have received an opinion, dated the
Closing Date, of Cahill Gordon & Reindel, counsel for the Initial
Purchaser, with respect to certain legal matters relating to this Agreement,
and such other related matters as the Initial Purchaser may reasonably
require. In rendering such opinion, Cahill Gordon & Reindel shall have
received and may rely upon such certificates and other documents and
information as they may reasonably request to pass upon such matters.
E. The Initial Purchaser shall have received from Arthur Andersen
LLP, independent public accountants for the Company, comfort letters, dated
the date hereof and the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser and counsel for the Initial Purchaser.
F. The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and
as of the Closing Date as if made on and as of the Closing Date; the Company
shall have performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date; and, except as set forth in the Final Memorandum (exclusive
of any amendment or supplement thereto after the date hereof) subsequent to
the date of the most recent financial statements in such Final Memorandum,
there shall have been no event or development that, individually or in the
aggregate, has or would be reasonably likely to have a Material Adverse
Effect.
G. The issuance and sale of the Notes pursuant to this Agreement
shall not be enjoined (temporarily or permanently) and no restraining order
or other injunctive order shall have been issued or any action, suit or
proceeding shall have been commenced with respect to this Agreement before
any court or governmental authority.
H. The Initial Purchaser shall have received certificates of the
Company, dated the Closing Date, signed by its Chief Financial Officer
and one other officer, in form and substance satisfactory to the Initial
Purchaser, to the effect that:
(i) Each signer of such certificate has carefully examined the Final
Memorandum and (A) as of the date of such certificate, such document is
true and correct in all material respects and does not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not untrue or misleading and (B) since the Effective Date,
no event has occurred as a result of which it is necessary to amend or
supplement the Final Memorandum in order to make the statements therein not
untrue or misleading in any material respect
<PAGE> 23
-23-
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects;
(iii) Each of the covenants required herein to be performed by the
Company on or prior to the delivery of such certificate has been duly,
timely and fully performed and each condition herein required to be complied
with by the Company on or prior to the date of such certificate has been
duly, timely and fully complied with;
(iv) Since the dates of the most recent financial statements in the
Final Memorandum (exclusive of any amendment or supplement thereto after
the date hereof), (A) no event or events have occurred, no information has
become known nor does any condition exist that, individually or in the
aggregate, would have a Material Adverse Effect and (B) neither the Company
nor any of its Subsidiaries has sustained any material loss or interference
with its business or properties from fire, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
any court or legislative or other governmental action, order or decree, which
is not set forth in the Final Memorandum; and
(v) The sale of the Notes hereunder have not been enjoined
(temporarily or permanently).
and such other matters as the Initial Purchaser may reasonably request.
I. On the Closing Date, the Initial Purchaser shall have received
the Registration Rights Agreement executed by the Company and the
Intercreditor Agreement executed by the parties thereto and such agreements
shall be in full force and effect at all times from and after the Closing
Date.
J. The Initial Purchaser shall have received from the Company a true
and correct executed copy of the New Credit Agreement, dated on or about
the Closing Date, and there shall have been no material amendments,
alterations, modifications or waivers of any provisions of the New Credit
Agreement, and there exists as of the date hereof and on and as of the
Closing Date (after giving effect to the transactions contemplated by this
Agreement and the application of the proceeds received by the Company from
the sale of the Notes) no condition that would constitute a Default or an
Event of Default (each as defined in the Credit Agreement) under the New
Credit Agreement. All indebtedness under the Existing Credit Agreement shall
have been repaid and all commitments thereunder terminated.
<PAGE> 24
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K. The STI Debt and the TFH Debt shall have been repaid
substantially on the terms set forth in the Offering Memorandum.
L. On the Closing Date, the Trustee shall have received each of the
Security Agreement (as defined in the Indenture), duly executed by the
Company and dated on or before the Closing Date, together with:
(i) duly executed UCC-1 financing statements or other documents
under the provisions of the Uniform Commercial Code or any other
applicable state law in proper form for filing in each office where such
filing is necessary or appropriate to grant to the Trustee for its benefit
and the benefit of the holders of the Notes the Liens of the character and
priority contemplated by the Security Agreement; and
(ii) evidence that all other actions necessary to perfect and
protect the Liens created by the Security Agreement have been taken.
M. On the Closing Date, the Company shall have caused to be
delivered to the Trustee the following documents and instruments with
regard to each Mortgaged Property (as defined in the Indenture) located
in the United States:
(i) a Mortgage encumbering the Company's fee interest or leasehold
interest, as the case may be, in each such Mortgaged Property, duly
executed and acknowledged by the owner or holder of the fee interest or
leasehold interest, as the case may be, constituting such Mortgaged Property
and otherwise in form for recording in the appropriate recording office of
the political subdivision where such Mortgaged Property is situated, together
with such certificates, affidavits, questionnaires or returns as shall be
required in connection with the recording or filing thereof and such UCC-1
financing statements and other similar statements as are contemplated in
respect of such Mortgage by the counsel opinions described in Section 7(c) of
this Agreement, and any other instruments necessary to grant the interests
purported to be granted by such Mortgage under the laws of any applicable
jurisdiction, which Mortgage and financing statements and other instruments
shall be effective to create a Lien on such Mortgaged Property subject to no
Liens other than Liens permitted to be outstanding pursuant to such Mortgage;
(ii) with respect to each Mortgage, a policy of title insurance (or
commitment to issue such a policy) insuring (or committing to insure) the
Lien of such Mortgage as a valid first Mortgage Lien on the real property and
fixtures described therein in respect of the Notes in an amount not less than
115% of the fair market value of such real property and fixtures, which
policy or commitment shall (a) be issued by Chicago Title Insurance Company,
(b) include such reinsurance arrangements (with
<PAGE> 25
-25-
provisions for direct access) as shall be acceptable to the Trustee, (c) have
been supplemented by such endorsements, where such endorsements are available
at commercially reasonable premium costs, as shall be requested by the
Trustee (including, without limitation, endorsements or opinion letters on
matters relating to usury, first loss, last dollar, zoning, non-imputation,
public road access, contiguity (where appropriate), cluster, survey, doing
business, variable rate and so-called comprehensive coverage over covenants
and restrictions) and (d) contain only such exceptions to title as shall be
agreed to by the Trustee prior to the Closing Date with respect to such
Mortgaged Property;
(iii) with respect to each Mortgaged Property, a survey certified to
the Trustee and the title insurance company and dated (or redated) not
earlier than six months prior to the date of delivery thereof, unless there
shall have occurred any exte rior change in the property affected thereby
during such period, in which event such survey shall be dated or redated to a
date after such change in such form as shall be required by the title
insurance company to issue the so-called comprehensive endorsement required
under paragraph (ii) hereof;
(iv) with respect to each Mortgaged Property, policies or
certificates of insurance as required by the Mortgages relating thereto,
which policies or certificates shall bear mortgage endorsements of the
character required by such Mortgages;
(v) with respect to each Mortgaged Property, UCC, judgment and tax
lien searches confirming that the personal property comprising a part of
such Mortgaged Property is subject to no Liens other than as set forth in
Schedule B to the Mortgages;
(vi) with respect to each Mortgaged Property, such affidavits,
certificates and instruments of indemnification as shall reasonably be
required to induce the title insurance company to issue the policy or
policies (or commitment) contemplated in subparagraph (ii) above;
(vii) checks payable to the appropriate public officials in payment
of all recording costs and transfer taxes (or checks or wire transfers to
the title insurance company in respect of such amounts) due in respect of the
execution, delivery or recording of such Mortgages, together with a wire
transfer for the title insurance company in payment of its premium, search
and examination charges, survey costs and any other amounts due in connection
with the issuance of its policies (or commitments);
(viii) with respect to each Mortgaged Property, copies of all Leases
(as defined in the Mortgages), all of which Leases shall, to the extent
not previously ap-
<PAGE> 26
-26-
proved in writing by the Initial Purchasers and the Trustee, be satisfactory
to the Initial Purchasers and the Trustee;
(ix) with respect to each Mortgaged Property, an Officers'
Certificate (as defined in the Indenture) stating that there has been issued
and is in effect a valid and proper certificate of occupancy or local
equivalent, if required by the local codes or ordinances for the use then
being made of the applicable Mortgaged Property and that the Company has not
received any outstanding citation, violation or similar notice indicating
that such Mortgaged Property contains conditions which are not in compliance
with local codes or ordinances relating to building or fire safety or
structural soundness; and
(x) such consents, approvals, amendments, supplements, estoppels,
tenant subordination agreements or other instruments as shall be
necessary in order for the owner or holder of the fee interest to grant the
Lien contemplated by the Mortgage with respect to such Mortgaged Property.
N. On or before the Closing Date, the Initial Purchaser and counsel
for the Initial Purchaser shall have received such further documents,
certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company as they shall have
heretofore reasonably requested from the Company.
All such documents, opinions, certificates and schedules or instruments
delivered pursuant to this Agreement will comply with the provisions hereof
only if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company shall
furnish to the Initial Purchaser such conformed copies of such documents,
opinions, certificates and schedules or instruments in such quantities as the
Initial Purchaser shall reasonably request.
8. Offering of Notes; Restrictions on Transfer. The Initial Purchaser
represents and warrants that it is a QIB. The Initial Purchaser agrees with
the Company (as to itself only) that (i) it has not and will not solicit offers
for, or offer or sell, the Notes by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act; and (ii) it has and will solicit offers for the Notes only from, and will
offer the Notes only to (A) in the case of offers inside the United States, (x)
persons whom the Initial Purchaser reasonably believes to be QIBs or, if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented
to the Initial Purchaser that each such account is a QIB, to whom notice has
been given that such sale or delivery is being made in reliance on Rule 144A,
and, in each case, in transactions under Rule 144A or (y) a limited number of
other institutional investors
<PAGE> 27
-27-
reasonably believed by the Initial Purchaser to be Accredited Investors that,
prior to their purchase of the Notes, deliver to the Initial Purchaser a letter
containing the representations and agreements set forth in Annex A to the Final
Memorandum and (B) in the case of offers outside the United States, to persons
other than U.S. persons ("foreign purchasers," which term shall include dealers
or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an estate or
trust)); provided, however, that in the case of this clause (B), in purchasing
such Notes such persons are deemed to have represented and agreed as provided
under the caption "Transfer Restrictions" contained in the Final Memorandum.
9. Indemnification and Contribution.
a. The Company will indemnify and hold harmless, the directors,
officers, employees and agents of the Initial Purchaser and each person,
if any, who controls the Initial Purchaser within the meaning of Section 15
of the Act or Section 20 of the Exchange Act from and against any and all
losses, claims, liabilities, expenses and damages (including, but not limited
to, any and all investigative, legal and other expenses reasonably incurred
in connection with, and any and all amounts paid in settlement of, any
action, suit or proceeding between any of the indemnified parties and any
indemnifying parties or between any indemnified party and any third party, or
otherwise, or any claim asserted), as and when incurred, to which the Initial
Purchaser, or any such person, may become subject under the Act, the Exchange
Act or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in any Memorandum or any amendment or
supplement thereto or in any application or other document executed by or on
behalf of the Company or based on written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Notes
under the securities laws thereof or filed with the Commission, (ii) the
omission or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it not
misleading or (iii) any act or failure to act or any alleged act or failure
to act by the Initial Purchaser in connection with, or relating in any manner
to, the Notes or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, liability, expense or damage
arising out of or based upon matters covered by clause (i) or (ii) above
(provided that the Company shall not be liable under this clause (iii) to the
extent it is finally judicially determined by a court of competent
jurisdiction that such loss, claim, liability, expense or damage resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by the Initial Purchaser through its gross negligence or willful
misconduct); provided that the Company will not be liable to the extent that
such loss, claim,
<PAGE> 28
-28-
liability, expense or damage arises from the sale of the Notes
in the offering to any person by the Initial Purchaser and is based on an
untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to the Initial
Purchaser furnished in writing to the Company by the Initial Purchaser
expressly for inclusion in any Memorandum. This indemnity agreement will be
in addition to any liability that the Company might otherwise have.
b. The Initial Purchaser will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to the Initial Purchaser,
but only insofar as losses, claims, liabilities, expenses or damages arise
out of or are based on any untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
relating to the Initial Purchaser furnished in writing to the Company by the
Initial Purchaser expressly for use in any Memorandum. This indemnity will
be in addition to any liability that the Initial Purchaser might otherwise
have; pro vided, however, that in no case shall the Initial Purchaser be
liable or responsible for any amount in excess of the total discounts and
commissions received by the Initial Purchaser.
c. Any party that proposes to assert the right to be indemnified
under this Section 9 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is
to be made against an indemnifying party or parties under this Section 9,
notify each such indemnifying party of the commencement of such action,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 9
unless, and only to the extent that, such omission results in the forfeiture
of substantive rights or defenses by the indemnifying party. If any such
action is brought against any indemnified party and it notifies the
indemnifying party of its commencement, the indemnifying party will be
entitled to participate in and, to the extent that it elects by delivering
written notice to the indemnified party promptly after receiving notice of
the commencement of the action from the indemnified party, jointly with any
other indemnifying party similarly notified, to assume the defense of the
action, with counsel satisfactory to the indemnified party, and after notice
from the indemnifying party to the indemnified party of its election to
assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently incurred by
the indemnified party in connection with the defense. The indemnified party
will have the right to employ its own counsel in any such action, but the
fees, expenses and
<PAGE> 29
-29-
other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified
party has been authorized in writing by the indemnifying party, (2) the
indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based on advice of
counsel to the indemnified party) between the indemnified party and the
indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm admitted
to practice in such jurisdiction at any one time for all such indemnified
party or parties. All such fees, disbursements and other charges will be
reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or
claim effected without its written consent (which consent will not be
unreasonably withheld). No indemnifying party shall, without the prior
written consent of each indemnified party, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding relating to the matters contemplated by this Section 9 (whether or
not any indemnified party is a party thereto), unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising or that may arise out of such claim, action
or proceeding.
d. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 9 is applicable in accordance with its terms but
for any reason is held to be unavailable from the Company or the Initial
Purchaser, the Company and the Initial Purchaser will contribute to the total
losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted, but after deducting any contribution received by the
Company from persons other than the Initial Purchaser, such as persons who
control the Company within the meaning of the Act, who also may be liable for
contribution) to which the Company and the Initial Purchaser may be subject
in such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchaser on the
other. The relative benefits received by the Company on
<PAGE> 30
-30-
the one hand and the Initial Purchaser on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total discounts and
commissions received by the Initial Purchaser, in each case as set forth in
the table on the cover page of the Final Memorandum. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one
hand, and the Initial Purchaser, on the other, with respect to the statements
or omissions which resulted in such loss, claim, liability, expense or
damage, or action in respect thereof, as well as any other relevant equitable
considerations with respect to such offering. Such relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of
a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company or the Initial Purchaser, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and the Initial Purchaser agree that it would not be just and equitable if
contributions pursuant to this Section 9(d) were to be determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to above in this
Section 9(d) shall be deemed to include, for purpose of this Section 9(d),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9(d), the Initial Purchaser
shall not be required to contribute any amount in excess of the total
discounts and commissions received by it and no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9(d), any person
who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 9(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 9(d). Except for a
settlement entered into pursuant to the last sentence of Section 9(c) hereof,
no party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent will not be unreasonably
withheld).
<PAGE> 31
-31-
e. The indemnity and contribution agreements contained in this
Section 9 and the representations and warranties of the Company contained
in this Agreement shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of the Initial
Purchaser, (ii) acceptance of the Notes and payment therefore or (iii) any
termination of this Agreement.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Initial Purchaser set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Initial Purchaser or any
controlling person referred to in Section 9 hereof and (ii) delivery of and
payment for the Notes. The respective agreements, covenants, indemnities and
other statements set forth in Sections 6, 9 and 15 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination.
A. The obligations of the Initial Purchaser under this Agreement may
be terminated at any time on or prior to the Closing Date by notice to
the Company, without liability on the part of the Initial Purchaser to the
Company, if, prior to delivery and payment for the Notes, in the sole
judgment of the Initial Purchaser, (i) there has been, since the respective
dates as of which information is given in the Final Memorandum, any material
adverse change in the Company's business, properties, business prospects,
condition (financial or otherwise) or results of operations, (ii) trading in
securities generally on the New York Stock Exchange or the Nasdaq Stock
Market shall have been suspended or limited or minimum or maximum prices
shall have been generally established on such exchange or over the counter
market, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or the NASD or any
court or other governmental authority, (iii) a general banking moratorium
shall have been declared by either Federal or New York State authorities or
(iv) any material adverse change in the financial or securities markets in
the United States or in political, financial or economic conditions in the
United States or any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or other
calamity or crisis shall have occurred the effect of any of which is such as
to make it, in the sole judgment of the Initial Purchaser, impracticable or
inadvisable to market the Notes on the terms and in the manner contemplated
by the Final Memorandum.
<PAGE> 32
-32-
B. Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements set
forth in the last paragraph of the cover page and the third paragraph of the
section entitled "Private Placement" constitute the only information furnished
by the Initial Purchaser to the Company for the purposes of Sections 2(a) and 9
hereof.
13. Notices. All communications hereunder shall be in writing and, if
sent to the Initial Purchaser, shall be mailed or delivered or telecopied and
confirmed in writing to PaineWebber Incorporated, 1285 Avenue of the Americas,
New York, New York 10019, Attention: Corporate Finance Department, and if
sent to the Company, shall be mailed, delivered or telecopied and confirmed in
writing to the Company at Tom's Foods Inc., 900 East 8th Street, Columbus, GA
31902 Attn: Chief Financial Officer.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser and the Company and their respective
successors, assigns and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of
this Agreement, or any provisions herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Company contained in Section 9 of this
Agreement shall also be for the benefit of any person or persons who control
any of the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act and (ii) the indemnities of the Initial
Purchaser contained in Section 9 of this Agreement shall also be for the
benefit of the directors and officers of the Company and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of any of the Notes from the Initial
Purchaser will be deemed a successor because of such purchase.
<PAGE> 33
-33-
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 34
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If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement between the Company and the
Initial Purchaser.
Very truly yours,
TOM'S FOODS INC.
By: /s/ Rolland G. Divin
-----------------------------------
Name: Rolland G. Divin
Title: Pres./C.E.O.
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PAINEWEBBER INCORPORATED
By: /s/ Warren M. Eckstein
----------------------------------
Name: Warren M. Eckstein
Title: Managing Director
<PAGE> 1
Exhibit 3.1
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
TOM'S FOODS INC.
FIRST: The name of the Corporation is Tom's Foods Inc. (hereinafter, the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Center Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under GCL.
FOURTH: The total number of shares of all classes and series of stock
which the Corporation shall have the authority to issue is 1,000 shares of
Common Stock, $.01 par value per share.
Each holder of record of shares of Common Stock shall be entitled to vote
at all meetings of the stockholders and shall have one vote for each share held
by such holder of record.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than
three nor more than fifteen directors, the exact number of directors to be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the directors then in office.
B. Any vacancy on the Board of Directors that results from an increase in
the number of directors may be filled by a majority of the Board of Directors
then in office, provided that a quorum is present, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the
directors then in
<PAGE> 2
office, even if less than a quorum, or by a sole remaining director.
C. Election of directors need not be by ballot unless the By-laws so
provide.
D. In addition to the powers and authority hereinabove or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of
the State of Delaware, of this Second Restated Certificate of Incorporation,
and to any By-laws from time to time made by the stockholders; provided,
however, that no By-law so made shall invalidate any prior act of the directors
which would have been valid if such By-law had not been made.
E. The Board of Directors shall have the concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the By-laws of the
Corporation.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or receivers appointed for this Corporation
under the provisions of Section 291 of the GCL or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of the GCL, order a meeting of
the creditors or class of creditors, and/or of the stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths (3/4) in value of
the creditors or class of creditors, and/or of the stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders, of this Corporation, as the case may be, and also on
this Corporation.
SEVENTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or it
-2-
<PAGE> 3
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the GCL, or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article EIGHTH
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omission of such
director occurring prior to such amendment.
-3-
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF THE
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
TOM'S FOODS INC.
TOM'S FOODS INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY
THAT:
FIRST: The Board of Directors of the corporation adopted a resolution
proposing and declaring advisable the following amendment to its Second
Restated Certificate of Incorporation;
RESOLVED, that ARTICLE FOURTH of the Second Restated Certificate of
Incorporation of this corporation be amended to read as follows
"FOURTH: The Total number of shares of all class and series of stock which
the Corporation shall have the authority to issue is 10,000 shares of Common
Stock, $.01 par value per share."
SECOND: The amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said TOM'S FOODS INC. has caused this certificate to be
executed by its Secretary/Treasurer this 28th day of August, 1996.
TOM'S FOODS INC.
By: /s/ Lyn D. Anderson
----------------------------
Lyn D. Anderson
Secretary/Treasurer
<PAGE> 5
CERTIFICATE OF DESIGNATIONS
PREFERENCES AND RIGHTS OF
THE PREFERRED STOCK
OF
TOM'S FOODS INC.
TO BE DESIGNATED
CLASS A EXCHANGEABLE PREFERRED STOCK
and
CLASS B PREFERRED STOCK
Tom's Foods Inc., a Delaware corporation (the "Corporation"), pursuant
to Section 151 of the General Corporation Law of the State of Delaware, hereby
certifies that the Board of Directors of the Corporation duly adopted the
following resolutions by unanimous written consent dated October 8, 1997,
providing for the authorization of two series of Preferred Stock; one series to
be designated "Class A Exchangeable Preferred Stock"; and another series to be
designated "Class B Preferred Stock".
RESOLVED, that an issue of a series of Class A Exchangeable Preferred
Stock of the Corporation, par value $.01 per share (the "Class A Exchangeable
Preferred Stock") consisting of Seven Thousand (7,000) shares is hereby
provided for, and the voting power, designations, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of such series shall be as described
in the Certificate of Designations, Preferences and Rights of the Preferred
Stock (the "Certificate of Designations"); and
FURTHER RESOLVED, that an issue of a series of Class B Preferred Stock of
the Corporation, par value $.01 per share (the "Class B Preferred Stock")
consisting of Twenty One Thousand Seven Hundred and Thirty Seven (21,737)
shares is hereby provided for, and the voting power, designations,
preferences and relative participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof, of such series
shall be as described in the Certificate of Designations; and
FURTHER RESOLVED, that the Certificate of Designations, in the form
presented to and containing the specific terms agreed to by this committee is
hereby approved.
The terms of the Preferred Stock authorized by the foregoing resolutions
of the Board of Directors are hereinafter set forth:
CLASS A EXCHANGEABLE PREFERRED STOCK
(1) Designation: Number of Shares and Aggregate Initial
Liquidation Preference
-1-
<PAGE> 6
This series of preferred stock shall be designated as the "Class A
Exchangeable Preferred Stock" (hereinafter called the "Class A Preferred") and
the number of shares which shall constitute such series shall not exceed 7,000.
The Class A Preferred shall have an aggregate initial liquidation preference
of $1,000 per share.
(ii) Accumulation and Payment of Dividends
Dividends on the Class A Preferred shall accrue at a rate of 10.5%, and
shall be paid from legally available funds, when, as and if declared by the
Board of Directors of the Corporation by increasing the liquidation preference
of the Class A Preferred or at the option of the Corporation, as permitted
under the Indenture and the Working Capital Facility, in cash.
Such dividends shall accrue on the then current liquidation preference
of the Class A Preferred, semi-annually commencing May 1, 1998 and thereafter on
November 1 and May 1 of each year (hereinafter referred to as a "Dividend
Payment Date"). Such dividends shall be payable before any dividend or other
distribution may be declared or paid or set apart for payment on any shares of
any common or Class B Preferred Stock. Each such dividend on the Class A
Preferred will be payable to holders of record as they appear on the stock
books of the Corporation on the immediately preceding October 15 and April 15,
as the case may be (each a "Record Date"). Dividends with respect to any shares
of Preferred Stock shall accumulate (whether or not earned or declared) from
October 14, 1997.
(A) Such dividends on the Class A Preferred shall be cumulative, whether
or not earned or declared so that if at any time full cumulative dividends at
at the rate aforesaid on all shares of Class A Preferred then outstanding to
the end of the semi-annual dividend period next preceding such time shall not
have been paid or declared and set apart for payment, the amount of the
deficiency shall be paid or declared and set apart for payment before any sum
shall be set aside for or applied by the Corporation to the purchase,
redemption or other acquisition for value of any shares of common or Class B
Preferred stock or any dividend or other distribution shall be paid or declared
and set apart for payment on any common or Class B Preferred stock.
(B) When dividends are not paid in full upon the Class A Preferred and
upon any other stock ranking on a parity as to dividends with the Class A
Preferred, all dividends paid upon shares of the Class A Preferred and upon any
other stock ranking on a parity as to dividends with the Class A Preferred
shall be paid pro rata so that in all cases the amount of dividends paid per
share upon the Class A Preferred and upon such other stock shall bear to each
other the same ratio that accumulated dividends per share on the shares of
Class A Preferred and on the shares of such other stock bear to each other.
Except as provided in the preceding sentence, unless full cumulative dividends
on the Class A Preferred have been paid, no dividend shall be declared or paid
or set apart for payment upon any other stock of the Corporation ranking on a
parity with the Class A Preferred as to dividends.
(C) A semi-annual dividend period shall commence on the day following a
Dividend Payment Date and shall end on the next succeeding Dividend Payment
Date; and dividends shall be deemed to have been set apart for payment when so
authorized to be set apart by resolution of the Board of Directors.
-2-
<PAGE> 7
(iii) Preference on Liquidation
In the event that the Corporation shall be liquidated, dissolved or wound up,
whether voluntarily or involuntarily, after all creditors of the corporation
shall have been paid in full, the holders of the Class A Preferred shall be
entitled to receive, out of the assets of the Corporation legally available for
distribution to its shareholders, whether from capital, surplus or earnings,
before any amount shall be paid to the holders of any shares of common or Class
B Preferred Stock, an amount equal to the then liquidation preference on the
Class A Preferred plus, without duplication, accumulated and uppaid dividends
to the date of final distribution, and no more. If upon any liquidation,
dissolution or winding up of the Corporation, the net assets of the Corporation
shall be insufficient to pay the holders of all outstanding shares of Class A
Preferred and of any shares of stock ranking on a parity with the Class A
Preferred as to liquidation preference the full amounts to which they
respectively shall be entitled, such assets, or the proceeds thereof, shall be
distributed ratably among the holders of the Class A Preferred and the holders
of any shares of stock ranking on a parity with the Class A Preferred as to
liquidation preference in the same ratio that the aggregate liquidation
preference of the Class A Preferred and the aggregate liquidation preference of
such other stock bear to each other.
(A) Neither the purchase nor redemption by the Corporation of
shares of any class of stock in any manner permitted by the Certificate of
Incorporation or any amendment thereof, nor the merger nor the consolidation
of the corporation with or into any other corporation or corporations, nor a
sale, transfer or lease of all or part of the Corporation's assets shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
the purposes of this paragraph (iii).
(iv) Change of Control
Upon the occurrence of a Change of Control (as defined in the Indenture),
holders of Class A Preferred with a liquidation preference of up to $10.0
million will be entitled to require the Corporation to purchase such holder's
Class A Preferred at a purchase price equal to the then liquidation preference
thereof, plus, without duplication, accumulated and unpaid dividends to the
purchase date.
(v) Optional Redemption
The Class A Preferred may be redeemed from funds legally available
therefor, in whole or in part, at the election of the Corporation, expressed by
resolution of the Board of Directors, at a redemption price equal to the then
liquidation preference, plus accrued and unpaid dividends thereon.
All redemptions pursuant to this paragraph (v) shall be accomplished in
the manner and with the effect as set forth in paragraph (vi).
(vi) Redemption Procedure
-3-
<PAGE> 8
(A) Notice of every redemption of Class A Preferred shall be given by mail
or in such other manner as may be prescribed by resolution of the Board of
Directors to each holder of the Class A Preferred Stock not less than 30 days
and not more than 60 days prior to the date of redemption. If less than all the
Class A Preferred is to be redeemed, the selection of shares for redemption
shall be made pro rata or by lot as specified in the resolution of the Board of
Directors, and the notice of redemption to a holder shall state the amount of
Class A Preferred of such holder to be redeemed. The amount of the applicable
redemption price shall be deposited on or before the applicable date of
redemption in trust for the account of the holders of Class A Preferred
entitled thereto with a bank or trust company in good standing doing business
in the State of New York and having capital and surplus of at least $100,000,000
(the date of such deposit being hereinafter in this paragraph (v) referred to
as the "date of deposit")
(B) Notice of the date on which, and the name and address of the bank or
trust company with which, the deposit has been or will be made shall be
included in the notice of redemption. On and after the applicable date of
redemption (unless default shall be made by the Corporation in providing money
for the payment of the redemption price pursuant to the notice of redemption),
or if the Corporation shall make such deposit on or before the date specified
therefor in the notice of redemption, then on and after the date of deposit
(provided notice of redemption has been duly given), all dividends on the
Class A Preferred so called for redemption shall cease to accumulate (except
for such dividends as are included in the Redemption Price) and,
notwithstanding that any certificate for shares of Class A Preferred is not
surrendered for cancellation, the shares represented thereby shall no longer be
deemed outstanding and all rights of the holders thereof as stockholders of the
Corporation shall cease and terminate, except the right to receive the
redemption price (including dividends thereon included in the redemption price)
as hereinafter provided.
(C) At any time on or after the applicable date of redemption, the
holders of record of the Class A Preferred to be redeemed shall be entitled to
receive the redemption price upon actual delivery to the bank or trust company
with which such deposit shall be made of certificates for the shares to be
redeemed, such certificates, if required, to be duly endorsed in blank or
accompanied by proper instruments of assignment and transfer duly endorsed in
blank. The making of such deposit with any such bank or trust company shall
not relieve the Corporation of liability for payment of the redemption price.
(D) Any money so deposited which shall remain unclaimed by the holders of
such Class A Preferred at the end of two years after the date of redemption
shall be paid by such bank or trust company to the Corporation, which shall
thereafter, to the extent of the money so repaid, be liable for the payment of
the redemption price for so long as it shall hold such money. Any interest
accrued on money so deposited shall be paid to the Corporation from time to
time.
(vii) Exchange for Exchange Notes
-4-
<PAGE> 9
On or after January 1, 1998, up to an aggregate of $10.0 million in
liquidation preference of the Class A Preferred may be exchanged, at the
Corporation's election, for an equal principal amount of Exchange Notes (as
defined in the Indenture); provided, however, that such exchange is conditioned
upon the Corporation having a Consolidated Fixed Charge Coverage Ration (as
defined in the Indenture) on a pro-forma basis of at least 2.25 to 1.00 for
the 12-month period ended on the last day of the most recent fiscal quarter
assuming the exchange occurred on the first day of such 12-month period.
Any exchange pursuant to this paragraph (vii) shall be accomplished in the
manner and with the effect as set forth in paragraph (viii).
(viii) Exchange Procedures
(A) Notice of an exchange of Class A Preferred pursuant to paragraph
(vii) shall be given by mail or in such other manner as may be prescribed
by resolution of the Board of Directors to each holder of the Class A
Preferred not less than 30 days and not more than 60 days prior to
the Exchange Date.
(B) On and after the Exchange Date, all dividends on the shares of
Class A Preferred to be exchanged shall cease to accumulate and,
notwithstanding that any certificate for shares of Class A Preferred is
not surrendered for cancellation, shares represented thereby shall no
longer be deemed outstanding and all rights of the holders thereof as
stockholders of the Corporation shall cease and terminate, except the
right to receive Exchange Notes as herein provided.
(C) At any time on or after the Exchange Date, the holders of record
of the Class A Preferred to be exchanged shall be entitled to receive the
amount of Exchange Notes set forth herein upon actual delivery to the
Trustee of certificates for the shares of Class A Preferred held by such
holder of record, such certificates, if required, to be duly endorsed in
blank or accompanied by proper instrument of assignment and transfer duly
endorsed in blank. The Person or Persons entitled to receive the
Exchange Notes issuable upon exchange shall be treated for all purposes
as the registered holder or holders of such Exchange Notes.
(D) The Corporation shall not be required to honor any requests to
register a transfer or exchange of the Class A Preferred for the 15 days
prior to the Exchange Date. The Corporation will cause the date of
authentication of the Exchange Notes to be the Exchange Date.
(ix) Reissuance of Shares
Shares of Class A Preferred which have been redeemed or purchased shall
have the status of authorized and unissued shares of preferred stock and may be
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the Board of Directors or as part of any other series of
preferred stock other than the Class A Preferred, all subject to the conditions
or restrictions on issuance set forth in any resolution or resolutions adopted
by the Board of Directors providing for the issuance of any series of preferred
stock.
-5-
<PAGE> 10
(x) Voting
The holders of shares of the Class A Preferred shall have no voting rights
whatsoever except as required by law and except as provided herein.
Notwithstanding the foregoing, unless the holders of at least a majority
of the issued and outstanding shares of the Class A Preferred, voting
separately as a class, shall have authorized such action, the Corporation shall
not (a) make any change in the rights, privileges or preferences of the Class A
Preferred or waive the right to receive any accumulated or unpaid dividends, or
(b) create any class of equity securities ranking senior to or on a parity with
the Class A Preferred as to dividends or liquidation preference.
CLASS B PREFERRED STOCK
(i) Designation: Number of Shares and Aggregate Initial Liquidation
Preference
This series of preferred stock shall be designated as the "Class B
Preferred Stock" (hereinafter called the "Class B Preferred") and the number
of shares which shall constitute such series shall not exceed 21,737. The Class
B Preferred shall have an aggregate initial liquidation preference of $1,000
per share.
(ii) Accumulation and Payment of Dividends
Dividends on the Class B Preferred shall accrue at a rate of 9.5%, and
shall be paid from legally available funds, when, as and if declared by the
Board of Directors of the Corporation by increasing the liquidation preference
of the Class B Preferred or at the option of the Corporation, as permitted
under the Indenture and the Working Capital Facility, in cash.
Such dividends shall accrue on the then current liquidation preference
of the Class B Preferred, semi-annually commencing May 1, 1998 and thereafter
on November 1 and May 1 of each year (hereinafter referred to as a "Dividend
Payment Date"). Such dividends shall be payable before any dividend or other
distribution may be declared or paid or set apart for payment on any shares of
any common stock. Each such dividend on the Class B Preferred will be payable
to holders of record as they appear on the stock books of the Corporation on
the immediately preceding October 15 and April 15, as the case may be (each a
"Record Date"). Dividends with respect to any shares of Preferred Stock shall
accumulate (whether or not earned or declared) from October 14, 1997.
(A) Such dividends on the Class B Preferred shall be cumulative,
whether or not earned or declared so that if at any time full cumulative
dividends at the rate aforesaid on all shares of Class B Preferred then
outstanding to the end of the semi-annual dividend period next preceding
such time shall not have been paid or declared and set apart for payment,
the amount of the deficiency shall be paid or declared and set apart for
payment before any sum shall be set aside for or applied by the
Corporation to the purchase, redemption or other acquisition for value of
any shares of common stock (either pursuant
-6-
<PAGE> 11
to any applicable sinking fund requirement or otherwise) or any dividend
or other distribution shall be paid or declared and set apart for payment
on any common stock.
(B) When dividends are not paid in full upon the Class B Preferred
and upon any other stock ranking on a parity as to dividends with the
Class B Preferred, all dividends paid upon shares of the Class B Preferred
and upon any other stock ranking on a parity as to dividends with the
Class B Preferred, all dividends paid upon shares of the Class B Preferred
and upon any other stock ranking on a parity as to dividends with the
Class B Preferred shall be paid pro rata so that in all cases the amount
of dividends paid per share upon the Class B Preferred and upon such other
stock shall bear to each other the same ratio that accumulated dividends
per share on the shares of Class A Preferred and on the shares of such
other stock bear to each other. Except as provided in the preceding
sentence, unless full cumulative dividends on the Class B Preferred have
been paid, no dividend shall be declared or paid or set apart for
payment upon any other stock of the Corporation ranking on a parity with
the Class B Preferred as to dividends.
(C) A semi-annual dividend period shall commence on the day
following a dividend Payment Date and shall end on the next succeeding
Dividend Payment Date; and dividends shall be deemed to have been set
apart for payment when so authorized to be set apart by resolution of the
Board of Directors.
(iii) Preference on Liquidation
(A) In the event that the Corporation shall be liquidated, dissolved or
wound up, whether voluntarily or involuntarily, after all creditors of the
Corporation shall have been paid in full, and the holders of the Class A
Preferred have received an amount equal to the then liquidation preference of
the Class A Preferred, the holders of the Class B Preferred shall be entitled
to receive, out of the assets of the Corporation legally available for
distribution to its shareholders, whether from capital, surplus or earnings,
before any amount shall be paid to the holders of any shares of common stock,
an amount equal to the then liquidation preference of the Class B Preferred
plus, without duplication, accumulated and unpaid dividends to the date of
final distribution, and no more. If upon any liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
insufficient to pay the holders of all outstanding shares of Class B Preferred
and of any shares of stock ranking on a parity with the Class B Preferred as to
liquidation preference the full amounts to which they respectively shall be
entitled, such assets, or the proceeds thereof, shall be distributed ratably
among the holders of the Class B Preferred and the holders of any shares of
stock ranking on a parity with the Class B Preferred as to liquidation
preference in the same ratio that the aggregate liquidation preference of the
Class B Preferred and the aggregate liquidation preference of such other
stock bear to each other.
(B) Neither the purchase nor redemption by the corporation of shares of
any class of stock in any manner permitted by the Certificate of Incorporation
or any amendment thereof, nor the merger nor the consolidation of the
corporation with or into any other corporation or corporations, nor a sale,
transfer or lease of all or part of the Corporation's assets shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for the
purposes of this paragraph (iii).
-7-
<PAGE> 12
(iv) Optional Redemption
The Class B Preferred may be redeemed from funds legally available
therefor, in whole or in part, at the election of the Corporation, expressed by
resolution of the Board of Directors, at a redemption price equal to the
liquidation preference, plus accrued and unpaid dividends thereon.
All redemptions pursuant to this paragraph (iv) shall be
accomplished in the manner and with the effect as set forth in paragraph (v).
(v) Redemption Procedure
(A) Notice of every redemption of Class B Preferred shall
be given by mail or in such other manner as may be prescribed by
resolution of the Board of Directors to each holder of the Class B
Preferred Stock not less than 30 days and not more than 60 days prior to
the date of redemption. If less than all the Class B Preferred is to be
redeemed, the selection of shares for redemption shall be made pro rata or
by lot as specified in the resolution of the Board of Directors, and the
notice of redemption to a holder shall state the amount of Class B
Preferred of such holder to be redeemed. The amount of the applicable
redemption price shall be deposited on or before the applicable date of
redemption in trust for the account of the holders of Class B Preferred
entitled thereto with a bank or trust company in good standing doing
business in the State of New York and having capital and surplus of at
least $100,000,000 (the date of such deposit being hereinafter in this
paragraph (v) referred to as the "date of deposit").
(B) Notice of the date on which, and the name and address of
the bank or trust company with which, the deposit has been or will be made
shall be included in the notice of redemption. On and after the
applicable date of redemption (unless default shall be made by the
Corporation in providing money for the payment of the redemption price
pursuant to the notice of redemption), or if the Corporation shall make
such deposit on or before the date specified therefor in the notice of
redemption, then on and after the date of deposit (provided notice of
redemption has been duly given), all dividends on the Class B Preferred so
called for redemption shall cease to accumulate (except for such
dividends as are included in the Redemption Price) and], notwithstanding
that any certificate for shares of Class B Preferred is not surrendered
for cancellation, the shares represented thereby shall no longer be deemed
outstanding and all rights of the holders thereof as stockholders of the
Corporation shall cease and terminate, except the right to receive the
redemption price (including dividends thereon included in the redemption
price) as hereinafter provided.
(C) At any time on or after the applicable date of
redemption, the holders of record of the Class B Preferred to be redeemed
shall be entitled to receive the redemption price upon actual delivery to
the bank or trust company with which such deposit shall be made of
certificates for the shares to be redeemed, such certificates, if
required, to be duly endorsed in blank or accompanied by proper
instruments of assignment and transfer duly endorsed in blank. The making
of such deposit with any such bank or trust
-8-
<PAGE> 13
company shall not relieve the Corporation of liability for payment of the
redemption price.
(D) Any money so deposited which shall remain unclaimed by
the holders of such Class B Preferred at the end of two years after the
date of redemption shall be paid by such bank or trust company to the
Corporation, which shall thereafer, to the extent of the money so repaid,
be liable for the payment of the redemption price for so long as it shall
hold such money. Any interest accrued on money so deposited shall be paid
to the Corporation from time to time.
(vi) Reissuance of Shares
Shares of Class B Preferred which have been redeemed or purchased shall
have the status of authorized and unissued shares of preferred stock and may be
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the Board of Directors or as part of any other series of
preferred stock other than the Class B Preferred, all suject to the conditions
or restrictions on issuance set forth in any resolution or resolutions
adopted by the Board of Directors providing for the issuance of any series of
preferred stock.
(vii) Voting
The holders of shares of the Class B Preferred shall have no voting
rights whatsoever except as required by law.
Definitions
The following terms, when used herein, shall have the meanings set forth
below:
"Exchange Date" means the date fixed by resolution of the Board of
Directors pursuant to paragraph (viii) specified in the notice of exchange for
the exchange of Class A Preferred for the Exchange Notes.
"Indenture" means the indenture dated as of October 14, 1997, between
Tom's Foods Inc. as the issuer and IBJ Schroder Bank & Trust Company as the
trustee.
"Offering Memorandum" means the offering memorandum dated as of September
18, 1997, which sets forth the material terms of the 10.5% senior secured notes
due 2004 issued by the Corporation.
"Person" means any individual, partnership, corporation, unincorporated
corporation, trust or joint venture, government or any agency or political
subdivision thereof.
"Working Capital Facility" means the Amended and Restated Loan and
Security Agreement dated as of October 14, 1997, between the corporation and
Congress Financial Corporation (Southern), together with the other "Financing
Agreements" (as defined
-9-
<PAGE> 14
therein) as the same may be amended from time to time, and any agreement
evidencing the refinancing, modification, replacement, renewal, restatement,
refunding, deferral, extension, substitution, supplement, reissuance or resale
thereof.
-10-
<PAGE> 15
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by S. Albert Gaston, its Senior Vice President and Chief Financial
Officer, and attested by Stanley Meadows, its Assistant Secretary, this 14th
day of October 1997.
Tom's Foods Inc.
By:/s/ S. Albert Gaston
--------------------
S. Albert Gaston
Senior Vice President and
Chief Financial Officer
ATTEST:
/s/ Stanley H. Meadows
- - ----------------------
Stanley H. Meadows,
Assistant Secretary
-11-
<PAGE> 1
Exhibit 3.2
BYLAWS OF
TOM'S FOODS, INC.
ARTICLE I
STOCKHOLDERS
------------
1.1 Meetings.
(a) Place. Meetings of the stockholders shall be held at such place as
may be designated by the board of directors.
(b) Annual Meeting. An annual meeting of the stockholders for the
election of directors and for other business shall be held at such time as may
be fixed by the board of directors.
(c) Special Meetings. Special meetings of the stockholders may be called
at any time by the president, or the board of directors, or the holders of a
majority of the outstanding shares of stock of the Company entitled to vote at
the meeting.
(d) Quorum. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of stock of the Company entitled to vote on
a particular matter shall constitute a quorum for the purpose of considering
such matter.
1.2 Voting Rights. Except as otherwise provided herein, in the
certificate of incorporation or by law, every stockholder shall have the right
at every stockholders' meeting to one vote for every share standing in his name
on the books of the Company which is entitled to vote at such meeting. Every
stockholder may vote either in person or by proxy.
ARTICLE II
DIRECTORS
---------
2.1 Number and Term. The board of directors shall have authority to (i)
determine the number of directors to constitute the board, and (ii) fix the
terms of office of the directors.
<PAGE> 2
2.2 Meetings.
(a) Place of Meetings. Meetings of the board of directors shall be held
at such place as may be designated by the board or in the notice of the
meeting.
(b) Regular Meetings. Regular meetings of the board of directors shall be
held at such times as the board may designate by resolution. Notice of regular
meetings need not be given.
(c) Special Meetings. Special meetings of the board may be called by
direction of the president or any two members of the board on three days'
notice to each director, either personally or by mail or by telegram.
(d) Quorum. A majority of all the directors in office shall constitute a
quorum for the transaction of business at any meeting.
2.3 Committees. The board of directors may, by resolution adopted by
majority of the whole board designate, one or more committees, each committee
to consist of one or more directors and such alternate members (also directors)
as may be designated by the board. Unless otherwise provided herein, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
director to act at the meeting in the place of any such absent or disqualified
member.
ARTICLE III
OFFICERS
--------
3.1 Election. At its first meeting after each annual meeting of the
stockholders, the board of directors shall elect a president, treasurer,
secretary and such other officers as it deems advisable.
3.2 Authority, Duties and Compensation. The officers shall have such
authority, perform such duties and serve for such compensation as may be
determined by resolution of the board of directors. Except as otherwise
provided by board resolution (i) the president shall be the chief executive
officer of the Company, shall have general supervision over the business and
- 2 -
<PAGE> 3
operations of the Company, may perform any act and execute any instrument for
the conduct of such business and operations and shall preside at all meetings
of the board and shareholders, (ii) the other officers shall have the duties
usually related to their offices, and (iii) the vice president, or vice
presidents in the order determined by the board, shall in the absence of the
president have the authority and perform the duties of the president.
ARTICLE IV
INDEMNIFICATION
---------------
4.1 Right to Indemnification. The Company shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or preceeding, either civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Company or a constituent corporation absorbed in a consolidation or merger,
or, while a director or officer of the Company, is or was serving at the
request of the Company or a constituent corporation absorbed in a consolidation
or merger, as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, including an employee benefit plan, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, whether or not the indemnified liability arises or
arose from any threatened, pending or completed action by or in the right of
the Company, except to the extent that such person is otherwise indemnified
and except to the extent that such person's claim for indemnification arises
out of liability (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 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 to the
extent that such person is not otherwise indemnified and to the extent that
such indemnification is not prohibited by applicable law.
4.2 Advance of Expenses. Expenses incurred by a director or officer of
the Company in defending a civil or criminal action, suit or proceeding shall
be paid by the Company in advance of the final disposition of such action, suit
or proceeding subject to the provisions of any applicable statute.
- 3 -
<PAGE> 4
4.3 Procedure for Determining Permissibility. To determine whether any
indemnification or advance of expenses under this Article IV is permissible,
the board of directors by a majority vote of a quorum consisting of directors
not parties to such action, suit or proceeding may, and on request of any
person seeking indemnification or advance of expenses shall be required to,
determine in each case whether the applicable standards in any applicable
statute have been met, or such determination shall be made by independent legal
counsel if such quorum is not obtainable, or, even if obtainable, a majority
vote of a quorum of disinterested directors so directs provided that, if there
has been a change in control of the Company between the time of the action or
failure to act giving rise to the claim for indemnification or advance of
expenses and the time such claim is made, at the option of the person seeking
indemnification or advance of expenses, the permissibility of indemnification
or advance of expenses shall be determined by independent legal counsel. The
reasonable expenses of any director or officer in prosecuting a successful
claim for indemnification, and the fees and expenses of any special legal
counsel engaged to determine permissibility of indemnification or advance of
expenses, shall be borne by the Company.
4.4 Contractual Obligation. The obligations of the company to indemnify a
director or officer under this Article IV, including the duty to advance
expenses, shall be considered a contract between the Company and such director
or officer, and no modification or repeal of any provision of this Article IV
shall affect, to the detriment of the director or officer, such obligations of
the corporation in connection with a claim based on any act or failure to act
occurring before such modification or repeal.
4.5 Indemnification Not Exclusive; Inuring of Benefit. The
indemnification and advance of expenses provided by this Article IV shall not
be deemed exclusive of any other right to which one indemnified may be
entitled, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall inure to the benefit of
the heirs, executors and administrators of any such person.
4.6 Insurance and Other Indemnification. The board of directors shall
have the power to (i) authorize the Company to purchase and maintain, at the
Company's expense, insurance on behalf of the Company and on behalf of others
to the extent that power to do so has not been prohibited by applicable law,
and (ii) give other indemnification to the extent permitted by law.
- 4 -
<PAGE> 5
ARTICLE V
TRANSFER OF SHARE CERTIFICATES
------------------------------
Transfers of share certificates and the shares represented thereby shall
be made on the books of the Company only by the registered holder or by duly
authorized attorney. Transfers shall be made only on surrender of the share
certificate or certificates.
ARTICLE VI
AMENDMENTS
----------
These bylaws may be altered, amended or repealed at any regular or special
meeting of the board of directors by the vote of a majority of all the
directors in office or at any annual or special meeting of stockholders by the
vote of the holders of a majority of the outstanding stock entitled to vote.
Notice of any such annual or special meeting of stockholders shall set forth
the proposed change or a summary thereof.
- 5 -
<PAGE> 1
________________________________________________________________________________
TOM'S FOODS INC.,
as Issuer,
and
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee and Collateral Agent
_____________________
INDENTURE
Dated as of October 14, 1997
_____________________
$70,000,000
10 1/2% Senior Secured Notes due 2004, Series A
and
10 1/2% Senior Secured Notes due 2004, Series B
________________________________________________________________________________
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<S> <C> <C>
TIA Section Indenture Section
Section 310 (a) (1)................................... 7.10
(a) (2)................................... 7.10
(a) (3)................................... 7.12
(a) (4)................................... N.A.
(b) ...................................... 7.8; 7.10; 13.2
(c) ...................................... N.A.
Section 311 (a) ...................................... 7.11
(b) ...................................... 7.11
(c) ...................................... N.A.
Section 312 (a) ...................................... 2.5
(b) ...................................... 13.3
(c) ...................................... 13.3
Section 313 (a) ...................................... 7.6
(b) (1) .................................. 7.6
(b) (2) .................................. 7.6
(c) ...................................... 7.6; 13.2
(d) ...................................... 7.6
Section 314 (a) ...................................... 4.8; 13.2
(b) ...................................... 10.2
(C) (1) .................................. 12.4
(c) (2) .................................. 12.4
(c) (3) .................................. N.A.
(d) ...................................... 10.4(c); 10.6
(e) ...................................... 12.5
(f) ...................................... N.A.
Section 315 (a) ...................................... 7.1(b)
(b) ...................................... 7.5; 13.2
(c) ...................................... 7.1(a)
(d) ...................................... 7.1(c)
(e) ...................................... 6.11
Section 316 (a) (Last sentence)...................... 2.9
(a) (1) (A) .............................. 6.5
(a) (1) (B) .............................. 6.4
(a) (2) .................................. N.A.
(b) ...................................... 6.7
Section 317 (a) (1) .................................. 6.8
(a) (2) .................................. 6.9
(b) ...................................... 2.3; 2.4
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 318 (a)....................................... 12. 1
N.A. means Not Applicable.
</TABLE>
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1.1. Definitions............................................ 1
SECTION 1.2. Incorporation by Reference of Trust
Indenture Act....................................... 30
SECTION 1.3. Rules of Construction.................................. 30
</TABLE>
ARTICLE II
THE SECURITIES
<TABLE>
<S> <C> <C>
SECTION 2.1. Form and Dating........................................ 31
SECTION 2.2. Execution and Authentication........................... 35
SECTION 2.3. Registrar and Paying Agent............................. 36
SECTION 2.4. Paying Agent To Hold Assets in
Trust................................................ 37
SECTION 2.5. Securityholder Lists................................... 38
SECTION 2.6. Transfer and Exchange.................................. 39
SECTION 2.7. Replacement Securities................................. 39
SECTION 2.8. Outstanding Securities................................. 40
SECTION 2.9. Treasury Securities.................................... 40
SECTION 2.10. Temporary Securities................................... 41
SECTION 2.11. Cancellation........................................... 41
SECTION 2.12. Defaulted Interest..................................... 41
SECTION 2.13. CUSIP Number........................................... 42
SECTION 2.14. Deposit of Moneys...................................... 42
SECTION 2.15. Book-Entry Provisions for Global
Security............................................. 42
SECTION 2.16. Special Transfer Provisions............................ 44
</TABLE>
ARTICLE III
REDEMPTION
<TABLE>
<S> <C> <C>
SECTION 3.1. Notices to Trustee..................................... 51
SECTION 3.2. Selection of Securities To Be
Redeemed............................................. 51
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 3.3. Notice of Redemption................................... 51
SECTION 3.4. Effect of Notice of Redemption......................... 53
SECTION 3.5. Deposit of Redemption Price............................ 53
SECTION 3.6. Securities Redeemed in Part............................ 53
</TABLE>
ARTICLE IV
COVENANTS
<TABLE>
<S> <C> <C>
SECTION 4.1. Payment of Securities.................................. 53
SECTION 4.2. Maintenance of Office or Agency........................ 54
SECTION 4.3. Corporate Existence.................................... 54
SECTION 4.4. Payment of Taxes and Other Claims...................... 55
SECTION 4.5. Maintenance of Properties;
Insurance; Books and Records;
Compliance with Law................................. 55
SECTION 4.6. Conduct of Business.................................... 56
SECTION 4.7. Compliance Certificates................................ 56
SECTION 4.8. Reports................................................ 57
SECTION 4.9. Further Assurance to the Trustee....................... 58
SECTION 4.10. Limitation on Indebtedness............................. 58
SECTION 4.11. Limitation on Restricted Payments...................... 59
SECTION 4.12. Limitation on Sale and Leaseback
Transactions........................................ 61
SECTION 4.13. Limitation on Liens.................................... 62
SECTION 4.14. Limitation on Sale of Assets........................... 62
SECTION 4.15. Limitation on Dividend and other
Payment Restrictions Affecting
Subsidiaries........................................ 67
SECTION 4.16. Limitation on Transactions with
Affiliates.......................................... 68
SECTION 4.17. Change of Control...................................... 69
SECTION 4.18. Limitation on Restricted and
Unrestricted Subsidiaries........................... 71
SECTION 4.19. Limitation on Guarantees by
Subsidiaries........................................ 73
SECTION 4.20. Impairment of Security Interest........................ 74
SECTION 4.21. Conflicting Agreements................................. 74
SECTION 4.22. Limitation on Amendments to Certain
Documents........................................... 74
SECTION 4.23. Real Property.......................................... 75
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 4.24. Waiver of Stay, Extension or Usury
Laws................................................ 75
</TABLE>
ARTICLE V
SUCCESSOR CORPORATION
<TABLE>
<S> <C> <C>
SECTION 5.1. When Company May Merge, Etc........................... 75
SECTION 5.2. Successor Entity Substituted.......................... 77
</TABLE>
ARTICLE VI
DEFAULT AND REMEDIES
<TABLE>
<S> <C> <C>
SECTION 6.1. Events of Default..................................... 78
SECTION 6.2. Acceleration.......................................... 80
SECTION 6.3. Other Remedies........................................ 81
SECTION 6.4. Waiver of Past Default................................ 81
SECTION 6.5. Control by majority................................... 82
SECTION 6.6. Limitation on Suits................................... 82
SECTION 6.7. Rights of Holders To Receive
Payment............................................. 83
SECTION 6.8. Collection Suit by Trustee............................ 83
SECTION 6.9. Trustee May File Proofs of Claim...................... 83
SECTION 6.10. Priorities............................................ 84
SECTION 6.11. Undertaking for Costs................................. 85
</TABLE>
ARTICLE VII
TRUSTEE
<TABLE>
<S> <C> <C>
SECTION 7.1. Duties of Trustee..................................... 85
SECTION 7.2. Rights of Trustee..................................... 87
SECTION 7.3. Individual Rights of Trustee.......................... 88
SECTION 7.4. Trustee's Disclaimer.................................. 89
SECTION 7.5. Notice of Defaults.................................... 89
SECTION 7.6. Reports by Trustee to Holders......................... 89
SECTION 7.7. Compensation and Indemnity............................ 89
SECTION 7.8. Replacement of Trustee................................ 91
SECTION 7.9. Successor Trustee by Merger, Etc...................... 92
SECTION 7.10. Eligibility; Disqualification......................... 92
SECTION 7.11. Preferential Collection of Claims
Against Company..................................... 93
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 7.12. Co-Trustee............................................ 93
</TABLE>
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
<TABLE>
<S> <C> <C>
SECTION 8.1. Termination of Company's
Obligations......................................... 94
SECTION 8.2. Legal Defeasance and Covenant
Defeasance.......................................... 96
SECTION 8.3. Application of Trust Money............................ 100
SECTION 8.4. Repayment to Company.................................. 101
SECTION 8.5. Reinstatement......................................... 101
</TABLE>
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
<TABLE>
<S> <C> <C>
SECTION 9.1. Without Consent of Holders............................ 102
SECTION 9.2. With Consent of Holders............................... 103
SECTION 9.3. Compliance with Trust Indenture Act................... 104
SECTION 9.4. Revocation and Effect of Consents..................... 104
SECTION 9.5. Notation on or Exchange of
Securities.......................................... 105
SECTION 9.6. Trustee To Sign Amendments, Etc....................... 105
</TABLE>
ARTICLE X
SECURITY DOCUMENTS
<TABLE>
<S> <C> <C>
SECTION 10.1. Collateral and Security Documents..................... 106
SECTION 10.2. Recording; Priority; Options, Etc..................... 107
SECTION 10.3. Disposition of Collateral Without
Release............................................. 109
SECTION 10.4. Release of Collateral................................. 112
SECTION 10.5. Substitute Collateral................................. 118
SECTION 10.6. Eminent Domain and Other
Governmental Takings................................ 119
SECTION 10.7. Trust Indenture Act Requirements...................... 121
SECTION 10.8. Suits To Protect the Collateral....................... 122
SECTION 10.9. Purchaser Protected................................... 122
SECTION 10.10. Powers Exercisable by Receiver or
Trustee............................................. 123
</TABLE>
-iv-
<PAGE> 8
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 10.11. Disposition of Obligations Received.................. 123
SECTION 10.12. Determinations Relating to
Collateral......................................... 123
SECTION 10.13. Renewal and Refunding................................ 124
SECTION 10.14. Release upon Termination of the
Company's Obligations.............................. 124
</TABLE>
ARTICLE XI
APPLICATION OF TRUST MONEYS
<TABLE>
<S> <C> <C>
SECTION 11.1. "Trust Moneys" Defined............................... 125
SECTION 11.2. Retirement of Securities............................. 126
SECTION 11.3. Withdrawals of Insurance Proceeds
and Condemnation Awards............................ 128
SECTION 11.4. Withdrawal of Trust Moneys for
Reinvestment....................................... 132
SECTION 11.5. Powers Exercisable Notwithstanding
Event of Default................................... 134
SECTION 11.6. Powers Exercisable by Trustee or
Receiver........................................... 134
SECTION 11.7. Disposition of Securities Retired.................... 134
SECTION 11.8. Investment of Trust Moneys........................... 135
</TABLE>
ARTICLE XII
MISCELLANEOUS
<TABLE>
<S> <C> <C>
SECTION 12.1. Trust Indenture Act Controls.......................... 135
SECTION 12.2. Notices............................................... 135
SECTION 12.3. Communications by Holders with other
Holders............................................ 136
SECTION 12.4. Certificate and Opinion of Counsel
as to Conditions Precedent......................... 137
SECTION 12.5. Statements Required in Certificate
and Opinion of Counsel............................. 137
SECTION 12.6. Rules by Trustee, Paying Agent,
Registrar.......................................... 137
SECTION 12.7. Legal Holidays........................................ 138
SECTION 12.8. Governing Law......................................... 138
SECTION 12.9. No Recourse Against Others............................ 138
SECTION 12.10. Successors............................................ 138
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 12.11. Duplicate Originals........................................ 138
SECTION 12.12. Separability............................................... 138
SECTION 12.13. Table of Contents, Headings, Etc........................... 139
SIGNATURES................................................................. 138
</TABLE>
EXHIBIT A - Form of Initial Security
EXHIBIT B - Form of Exchange Security
EXHIBIT C - Form of Certification to be given by the holders of beneficial
interest in a temporary Regulation S global security to
Euroclear or Cedel
EXHIBIT D - Form of certification to be given by Euroclear operator or
Cedel
EXHIBIT E - Form of certification to be given by transferee of beneficial
interest in a temporary Regulation S global security
EXHIBIT F - Form of certification for transfer or exchange of restricted
global security to temporary Regulation S global security
EXHIBIT G - Form of certification for transfer or exchange of restricted
global security to permanent Regulation S global security
EXHIBIT H - Form of certification for transfer or exchange of temporary
Regulation S global security or permanent Regulation S global
security to restricted global security
EXHIBIT I - Form of certification for transfer or exchange of non-global
restricted security to restricted global security
EXHIBIT J - Form of certification for transfer or exchange of non-global
restricted security to permanent Regulation S global security
or temporary Regulation S global security
EXHIBIT K-1 - Form of certification for transfer or exchange of non-global
permanent Regulation S security to restricted global security
EXHIBIT K-2 - Form of certification for transfer or exchange of non-global
permanent Regulation S security to permanent Regulation S
global security
EXHIBIT L - Form of Transferee Letter of Representation
EXHIBIT M - Form of Legend for Book-Entry Securities
-vi-
<PAGE> 10
EXHIBIT N - Form of Mortgage
EXHIBIT O - Form of Security Agreement
EXHIBIT P - Form of Intercreditor Agreement
EXHIBIT Q - Form of Environmental Indemnity Agreement
EXHIBIT R - Form of Subordination Agreement
Schedule A - List of Mortgaged Real Properties
-vii-
<PAGE> 11
INDENTURE dated as of October 14, 1997, among TOM'S FOOD'S INC., a
Delaware corporation, as Issuer (the "Company") and IBJ SCHRODER BANK & TRUST
COMPANY, a New York banking corporation, as Trustee and as Collateral Agent (in
either or both such capacities, the "Trustee").
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of the 10 1/2% Senior Secured Notes due
2004, Series A, of the Company (the "Initial Securities") and the 10 1/2%
Senior Secured Notes due 2004, Series B, of the Company (the "Exchange
Securities" and, together with the Initial Securities, the "Securities") to be
issued as provided for in this Indenture. On the date hereof, $60,000,000 of
the Initial Securities will be issued pursuant to this Indenture. Upon the
issuance of the Exchange Securities and subject to certain conditions, an
additional $10.0 million of the Exchange Securities may be issued pursuant to
the Indenture.
The parties hereto agree as follows for the benefit of each other and
for the equal and ratable benefit of the Holders of the Securities, without
distinction as to series:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION I.1. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (i) existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company
or a Restricted Subsidiary in connection with the acquisition of assets from
such Person, in each case not incurred in connection with, or in anticipation
or contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, merger or consolidation.
<PAGE> 12
-2-
"Additional Interest" shall have the meaning set forth in the
Registration Rights Agreement.
"Affiliate" means, when used with reference to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, the referent Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct or cause the direction of management or policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning provided in Section 4.16.
"Agent" means any Registrar, Paying Agent, Authenticating Agent or
co-registrar.
"Agent Members" has the meaning provided in Section 2. 15.
"Appraiser" means a Person who, in the ordinary course of its business,
appraises property and, where real property is involved, who is a member in
good standing of the American Institute of Real Estate Appraisers, recognized
and licensed to do business in the jurisdiction where the applicable real
property is situated.
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
with the Company or any Restricted Subsidiary of the Company or (ii) the
acquisition by the Company or any Restricted Subsidiary of the Company of
assets of any Person comprising a division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer
<PAGE> 13
-3-
for value by the Company or by any of its Restricted Subsidiaries to any Person
other than to the Company or to a Wholly Owned Restricted Subsidiary of (i) any
Capital Stock of any Restricted Subsidiary or (ii) any other property or assets
of the Company or of any Restricted Subsidiary, other than with respect to this
clause (ii) any such sale, conveyance, transfer, lease, assignment or other
transfer for value in the ordinary course of business; provided, however, Asset
Sale shall not include any transaction for fair market value for which the
Company or its Restricted Subsidiaries receive consideration of less than
$750,000.
"Asset Sale Offer" has the meaning provided in Section 4. 14.
"Asset Sale Payment Date" means, with respect to any Available Amount
from an Asset Sale, the earliest of (x) the 270th day following receipt of such
Available Amount if no written commitments to apply such Available Amount to a
use other than an Asset Sale Offer have been made prior to such day or (y) such
earlier date on which an Asset Sale Offer shall expire.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction as of any particular time, the present value (discounted at the
rate of interest implicit in the terms of the lease) of the obligations of the
lessee under such lease for net rental payments during the remaining term of
the lease (including any period for which such lease has been extended or may,
at the option of the Company, be extended).
"Available Proceeds Amount" has the meaning set forth in Section 4.14.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar federal
or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors authorized to act for it hereunder.
<PAGE> 14
-4-
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the board of directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any day
on which banking institutions in the City of New York, are required or
authorized by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Capitalized Lease obligation" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease that are required to
be classified and accounted for as capital lease obligations under GAAP and,
for purposes of this definition, the amount of such obligations at any date
shall be the capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's,,); (iii) commercial paper maturing no more
than one year from the date of creation
<PAGE> 15
-5-
thereof and, at the time of acquisition, having a rating of at least A-1 from
S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers,
acceptances maturing within one year from the date of acquisition thereof
issued by any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia or any U.S. branch of
a foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $100,000,000 and at the time of purchase received one
of the three highest ratings from the following rating organizations: S&P and
Moody's; (v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (iv) above; and
(vi) shares of any so-called "money market fund" or mutual fund which has at
least 85 of its assets invested in investments of the type described in clauses
(i), (ii) and (iii) above including funds to which the Trustee may be the
financial advisor and/or custodian.
"CEDEL" means Cedel Bank, soci6t6 anonyme (or any successor securities
clearing agency).
"Change of Control" means the occurrence of one or more of the
following events (whether or not approved by the board of directors of the
Company): (i) the Company consolidates with or merges with or into another
Person or any Person consolidates with, or merges with or into, the Company (in
each case, whether or not in compliance with the terms of the Indenture), in
any such event pursuant to a transaction in which immediately after the
consummation thereof the Permitted Holders shall cease to have the power,
directly or indirectly (including by way of a general partnership interest), to
vote or direct the voting of securities having at least 51% of the ordinary
voting power for the election of the directors of the Company; provided, that a
merger of TFH and TFCC into the Company made in compliance with Article V will
not be considered a merger for purposes of this clause (i); or (ii) the Company
or any of its Restricted Subsidiaries, directly or indirectly, sells, assigns,
conveys, transfers, leases or otherwise dis-
<PAGE> 16
-6-
poses of, in one transaction or a series of related transactions, all or
substantially all of the property or assets of the Company and its Restricted
Subsidiaries (determined on a consolidated basis) to any Person or group (other
than a wholly owned Subsidiary of the Company) of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group of Persons,,); or (iii) the
adoption of any plan of liquidation or dissolution of the Company (whether or
not in compliance with the provisions of the Indenture); or (iv) any "person"
or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act (other than the Company or the Permitted Holders)) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of Capital Stock of
the Company representing at least 35% of the voting power of the Capital Stock
of the Company and the Permitted Holders own or control less than 35%; or (v)
the replacement of a majority of the Board of Directors of the Company over a
two-year period from the directors who constituted the Board of Directors of
the Company at the beginning of such period with directors whose replacement
shall not have been approved (by recommendation, nomination or election, as the
case may be) by a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved. For purposes of the foregoing, the
transfer (by lease, assignment, sale or otherwise, in a single transaction or
series of transactions) of (a) 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.
"Change of Control Date" has the meaning provided in Section 4.17.
"Change of Control Offer" has the meaning provided in Section 4.17.
<PAGE> 17
-7-
"Change of Control Payment Date" has the meaning provided in Section
4.17
"Class A Preferred Stock" means the 7,000 Shares of Exchangeable
Preferred Stock of the Company, $ 0.01 par value per share, Class A, with an
initial aggregate liquidation preference of $7,000,000.
"Class B Preferred Stock" means the 21,737 Shares of Preferred Stock of
the Company, $0.01 par value per share, Class B, with an initial aggregate
liquidation preference of $21,737,000.
"Collateral" means, collectively, all of the property and assets
(including, without limitation, Trust Moneys) that are from time to time
subject to or purported to be subject to the Lien of the Indenture or any of
the Security Documents.
"Collateral Account" means the collateral account to be established
pursuant to Section 11.01 hereof.
"Collateral Agent" means IBJ Schroder Bank & Trust Company, in its
capacity as collateral agent and secured party under the Security Documents,
and any successor thereto in such capacity.
"Collateral Proceeds" has the meaning set forth in Section 4.14.
"Commodity Agreement" of any Person means any option or futures
contract or similar agreement or arrangement.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it in accordance with the
<PAGE> 18
-8-
provisions of this Indenture and, thereafter, means the successor.
"Company Order" means a written order or request signed in the name of
the Company by its President or a Vice President, and by its Treasurer or an
Assistant Treasurer or Secretary or an Assistant Secretary and delivered to the
Trustee.
"Congress" means Congress Financial Corporation (Southern), a Georgia
corporation, and its successors and assigns.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of (a) Consolidated Net Income and (b) to the extent Consolidated
Net Income has been reduced thereby, (i) all income taxes of the Company and
its Restricted Subsidiaries paid or accrued in accordance with GAAP for such
period (other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (ii) Consolidated Interest Expense,
(iii) any amounts excluded from the calculation of Consolidated Interest
Expense pursuant to the proviso of the definition thereof, (iv) the amount of
any Preferred Stock dividends paid in cash by the Company and its Restricted
Subsidiaries and (v) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in
accordance with GAAP.
"Consolidated Financial Statements" means the consolidated financial
statements of the Company as contained in the Offering Memorandum.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of (a) Consolidated EBITDA of the Company during the four
full fiscal quarters for which financial information in respect thereof is
available (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Con-
<PAGE> 19
-9-
solidated EBITDA Coverage Ratio (the "Transaction Date") to (b) Consolidated
Fixed Charges of the Company for the Four Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated
after giving effect (without duplication) on a pro forma basis for the period
of such calculation to (a) the incurrence or repayment of any Indebtedness of
the Company or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of indebtedness in
the ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or at any
time subsequent to the last day of the Four Quarter Period and on or prior to
the Transaction Date, as if such incurrence or repayment, as the case may be
(and the application of the proceeds thereof), occurred on the first day of the
Four Quarter Period and (b) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Company or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness, and also including, without limitation, any Consolidated EBITDA
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If the
Company or any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if the Company or the Restricted
Subsidiary, as the case may be, had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating
<PAGE> 20
-10-
"Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated EBITDA Coverage
Ratio," (i) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date;
(ii) if interest on any Indebtedness actually incurred on the Transaction Date
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rates, then
the interest rate in effect on the Transaction Date will be deemed to have been
in effect during the Four Quarter Period; (iii) notwithstanding clauses (i) and
(ii) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate par annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), Plus
(b) the product of (i) the amount of all cash dividend payments on any class of
Preferred Stock of the Company and its Restricted Subsidiaries paid, accrued or
scheduled to be paid or accrued during such period times (other than any
payment of a dividend to the Company) (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of such Person, expressed
as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for
any period, the sum of, without duplication: (a) the aggregate of the interest
expense of the Company and its Restricted Subsidiaries for such period
determined on a
<PAGE> 21
-11-
consolidated basis in accordance with GAAP, including without limitation, (i)
any amortization of original issue discount, (ii) the net costs under Interest
Swap Obligations, (iii) all capitalized interest and (iv) the interest portion
of any deferred payment obligation; and (b) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and its Restricted Subsidiaries during such period, as
determined on a consolidated basis in accordance with GAAP; provided, however,
Consolidated Interest Expense shall not include non-cash dividends on the Class
A Preferred Stock which are treated as interest expense in accordance with
GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income (or loss) of the Company and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, however, that there shall be excluded therefrom (a)
after-tax gains from Asset Sales or abandonments or reserves relating thereto,
(b) after-tax items classified as extraordinary or nonrecurring gains, (c) the
net income of any Person acquired in a "pooling of interests" transaction
accrued prior to the date it becomes a Restricted Subsidiary or is merged or
consolidated with the Company or any Restricted Subsidiary, (d) the net income
(but not loss) of any Restricted Subsidiary to the extent that the declaration
of dividends or similar distributions by that Restricted Subsidiary of that
income is restricted by charter, contract, operation of law or otherwise, (e)
the net income of any Person in which the Company has an interest, other than a
Restricted Subsidiary, except to the extent of cash dividends or distributions
actually paid to the Company or to a Restricted Subsidiary by such Person, (f)
income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued) and (g) in the case of a successor
to the Company by consolidation or merger or as a transferee of the Company's
assets, any net income (or loss) of the successor corporation prior to such
consolidation, merger or transfer of assets.
<PAGE> 22
-12-
"Consolidated Net Worth" of any Person as of any date means the
consolidated stockholders, equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company, for
any period, the aggregate depreciation, depletion, amortization and other
non-cash expenses of the Company and its Restricted Subsidiaries reducing
Consolidated Net Income of the Company for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or arrangement designed to protect the Company and any Restricted
Subsidiary of the Company against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official charged with maintaining possession or control
over property for one or more creditors.
"Default" means any event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Destruction" shall have the meaning assigned to such term in the
mortgages.
"Disqualified Capital Stock" means any Capital Stock which, 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, (i) matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is
<PAGE> 23
-13-
redeemable at the sole option of the holder thereof, in whole or in part, on
or prior to the final maturity date of the Securities, or (ii) is convertible
into or exchangeable for (whether at the option of the issuer or the holder
thereof) (a) debt securities or (b) any Capital Stock referred to in (i) above,
in each case at any time prior to the final maturity of the Securities.
"Equipment" shall have the meaning assigned to such term in the
Security Agreement.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Events of Default" has the meaning provided in Section 6. 1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended or
any successor statute or statutes thereto.
"Exchange Securities" means senior debt securities of the Company
substantially identical to the Initial Securities except for the removal of
transfer restrictions and the possible increase in aggregate principal amount
as provided in clause (b)(ii)(b) of Section 4.10.
"Exchange Offer" means the Company's offer to exchange Exchange
Securities for the Securities.
"Fair Market Value" or "Fair Value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction.
"Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the board of directors of the Company, qualified to
perform the task for which such firm has been engaged.
<PAGE> 24
-14-
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"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 may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Security" means the global security, without coupons,
representing all or a portion of the Securities deposited with DTC.
"Guarantee" has the meaning set forth in Section 4 .19.
"Holder" or "Securityholder" means each Person in whose name a Security
is registered on the Registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such
Person (and "Incurrence," "Incurred," "Incurable" and "Incurring" shall have
meanings correlative to the foregoing); provided, however, that (A) any
Indebtedness of a Person existing at the time such Person becomes (after the
Issue Date) a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) of the Company shall be deemed to be Incurred or issued, as the case
may be, by such Subsidiary at the time it becomes a Subsidiary of the Company
and (B) any amendment, modification or waiver of any document pursuant to which
Indebtedness was previously Incurred shall be deemed to be an Incurrence of
Indebtedness unless and to the extent such amendment, modification or waiver
does not (i) increase the principal or premium thereof or interest rate thereon
(includ-
<PAGE> 25
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ing by way of original issue discount) or (ii) change to an earlier date
the stated maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under which such Indebtedness
shall be redeemed.
"Indebtedness" means with respect to any Person, without duplication,
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and accrued liabilities arising
in the ordinary course of business that are not overdue by 90 days or more or
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) all Indebtedness of others (including all dividends of other
Persons for the payment of which is) guaranteed, directly or indirectly, by
such Person or that is otherwise its legal liability or which such Person has
agreed to purchase or repurchase or in respect of which such Person has agreed
contingently to supply or advance funds, (vii) net liabilities of such Person
under Interest Swap Obligations and Commodity Agreements, (viii) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
any asset or property (including, without limitation, leasehold interests and
any other tangible or intangible property) of such Person, whether or not such
Indebtedness is assumed by such Person or is not otherwise such Person's legal
liability; provided that if the Obligations so secured have not been assumed by
such Person or are otherwise not such Person's legal liability, the amount of
such Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount such Indebtedness secured by such Lien or the fair market
value of the assets or property securing such Lien, and (ix) all Preferred
Stock issued by such Person with the amount of Indebted-
<PAGE> 26
-16-
ness represented by such Preferred Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed
repurchase price, but excluding accrued dividends if any. For purposes hereof,
the "maximum fixed repurchase price" of any Preferred Stock which does not have
a fixed repurchase price shall be calculated in accordance with the terms of
such Preferred Stock as if such Preferred Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Preferred Stock, such fair market value shall be determined
reasonably and in good faith by the board of directors of the issuer of such
Preferred Stock. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at
such date; provided that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the full amount of such Indebtedness
less the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP.
"Indenture" means this Indenture as amended or supplemented from time
to time pursuant to the terms hereof.
"Independent" when used with respect to any specified Person means such
a Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries
and (c) is not an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions for the Company or any of its
Subsidiaries. Whenever it is provided in the Indenture that any Independent
Person's opinion or certificate shall be furnished to the Trustee, such Person
shall be appointed by the Company and approved by the Trustee in the exercise
of reasonable care, and such opinion or certificate shall state that the signer
has read
<PAGE> 27
-17-
this definition and that the signer is Independent within the meaning thereof.
"Industrial Revenue Bonds" shall mean (i) the $4,200,000 aggregate
principal amount of Industrial Revenue Bonds of the Industrial Development
Board of the County of Knox (General Mills, Inc. Project), Series 1979 (the
"Knox County Industrial Revenue Bonds") and (ii) the $5,800,000 aggregate
principal amount of Industrial Revenue Bonds of Taylor County (the "Taylor
County Industrial Revenue Bonds").
"Initial Purchaser" means PaineWebber Incorporated.
"Initial Securities" has the meaning provided in the preamble to this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as the term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Intercreditor Agreement" means the intercreditor agreement dated as of
October 14, 1997 by and between the Trustee (in that capacity and as Collateral
Agent) for itself and on behalf of the Holders, and Congress, as such
Intercreditor Agreement is in effect on the Issue Date, other than any
amendment, alteration, modification, or waiver thereto to the extent not
materially adverse to the interests of the Company, the Trustee or the Holders,
and any substitute or replacement intercreditor agreement executed and
delivered as provided under the terms of the Intercreditor Agreement (or any
such substitute or replacement intercreditor agreement), a form of which is
attached hereto as Exhibit P.
"Interest," when used with respect to any Security, means the amount of
all interest accruing on such Security, including all interest accruing
subsequent to the occurrence of any events specified in Sections 6.1(a)(viii)
and (ix) or which would have accrued but for any such event.
<PAGE> 28
-18-
"Interest Payment Date," when used with respect to any Security, means
the stated maturity of an installment of interest specified in such Security.
"Interest Rate," when used with respect to any Security, means the rate
per annum specified in such Security as the rate of interest accruing on the
principal amount of such Security.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
other Person calculated by applying a fixed or a floating rate of interest on
the same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
(i) loan, advance or other extension of credit (including, without limitation,
a guarantee) or capital contribution to (by means of any transfer of cash or
other property (valued at the fair market value thereof as of the date of
transfer) others or any payment for property or services for the account or use
of others), (ii) purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person (whether by merger, consolidation, amalgamation or
otherwise and whether or not purchased directly from the issuer of such
securities or evidences of Indebtedness), (iii) guarantee or assumption of the
Indebtedness of any other Person (other than the guarantee or assumption of
Indebtedness of such Person or a Restricted Subsidiary of such Person which
guarantee or assumption is made in compliance with Section 4.10, and (iv) other
items that would be classified as investments on a balance sheet of such Person
prepared in accordance with GAAP. Notwithstanding the foregoing, "Investment"
shall exclude extensions of trade credit by the Company and its Restricted
Subsidiaries on commercially reasonable terms in ac-
<PAGE> 29
-19-
cordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. The amount of any Investment shall not be
adjusted for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. If the Company or any Restricted
Subsidiary sells or otherwise disposes of any Capital Stock of any Restricted
Subsidiary such that, after giving effect to any such sale or disposition, it
ceases to be a Subsidiary of the Company, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the
fair market value of the Capital Stock of such Restricted Subsidiary not sold
or disposed of.
"Issue Date" means the date the Securities are initially issued.
"Legal Holiday" means any day other than a Business Day.
"Lien" means, with respect to any Person, (x) any mortgage, deed of
trust, pledge, lien, encumbrance, easement, restriction, covenant,
right-of-way, charge or adverse claim affecting title or resulting in an
encumbrance against real or personal property of such Person, or a security
interest of any kind (including, without limitation, any conditional sale or
other title retention agreement, any lease in the nature thereof, any option,
right of first refusal or other similar agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statute or statutes) of any jurisdiction other than to reflect
ownership by a third party of property leased to the referent Person or any of
its Subsidiaries under a lease that is not in the nature of a conditional sale
or title retention agreement) and (y) any agreement to enter into any of the
foregoing.
"Liquidated Damages" means all additional interest owing pursuant to
the Registration Rights Agreement.
"Material Subsidiary" means, at any date of determination, any
Subsidiary of the Company that, together with its
<PAGE> 30
-20-
Subsidiaries, (i) for the most recent fiscal year of the Company accounted for
more than 5 of the consolidated revenues of the Company or (ii) as of the end
of such fiscal year, was the owner of more than 5% of the consolidated assets
of the Company, all as set forth on the most recently available consolidated
financial statements of the Company and its consolidated Subsidiaries for such
fiscal year prepared in conformity with GAAP.
"Maturity Date," when used with respect to any Security, means the date
specified in such Security as the fixed date on which the principal of such
Security is due and payable.
"Mortgage" means the mortgages, deeds of trust and deeds to secure
debt, each dated as of the date hereof, made by the Company in favor of the
Trustee (for the benefit of the Holders), as the same may be amended, amended
and restated, supplemented or otherwise modified from time to time.
"Mortgaged Property" has the meaning assigned to such term in each
Mortgage.
"Net Award" has the meaning assigned to such term in the Mortgages and
shall include any amounts received in respect of personal property pursuant to
the Security Agreement or otherwise.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
in the form of cash or Cash Equivalents (including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale (except to the extent that such obligations are sold with
recourse to the Company or to any Restricted Subsidiary) net of (a) reasonable
out-of-pocket expenses and fees relating to such Asset Sale (including, without
limitation, brokerage, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable ((l) including, without limitation,
income taxes reasonably estimated to be actually payable as a result of any
disposition of property within two
<PAGE> 31
-21-
years of the date of disposition and (2) after taking into account any
reduction in tax liability due to available tax credits or deductions and any
tax sharing arrangements) and (c) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve, in
accordance with generally accepted accounting principles, against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale (but excluding any
payments which, by the terms of the indemnities will not, be made during the
term of the Securities).
"Net Equity Proceeds" means (a) in the case of any sale by the Company
of Qualified Capital Stock of the Company, the aggregate net cash proceeds
received by the Company, after payment of expenses, commissions and the like
(including, without limitation, brokerage, legal, accounting and investment
banking fees and commissions) incurred in connection therewith, and (b) in the
case of any exchange, exercise, conversion or surrender of any outstanding
Indebtedness of the Company or any Subsidiary for or into shares of Qualified
Capital Stock of the Company, the amount of such Indebtedness (or, if such
Indebtedness was issued at an amount less than the stated principal amount
thereof, the accrued amount thereof as determined in accordance with GAAP) as
reflected in the consolidated financial statements of the Company prepared in
accordance with GAAP as of the most recent date next preceding the date of such
exchange, exercise, conversion or surrender (plus any additional amount
required to be paid by the holder of such Indebtedness to the Company or to any
wholly owned Subsidiary of the Company upon such exchange, exercise, conversion
or surrender and less any and all payments made to the holders of such
Indebtedness, and all other expenses incurred by the Company in connection
therewith), in each case (a) and (b) to the extent consummated after the Issue
Date; provided that the exchange, exercise, conversion or surrender of any
Indebtedness which is subordinated (whether pursuant to its terms or by
operation of law) to
<PAGE> 32
-22-
the Securities shall not be or be deemed to be included in Net Equity Proceeds.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" has the meaning assigned to such term in the Mortgages
and shall include any amounts received in respect of any personal property
pursuant to the Security Agreement.
"Non-Collateral Proceeds" has the meaning set forth in Section 4.14.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the offering memorandum of the Company,
dated October 8, 1997 pursuant to which the Company offered the Securities.
"Officer" means the Chairman, the President, any vice President, the
Chief Financial Officer, the Treasurer, the Secretary or the Controller of the
Company.
"Officers' Certificate" means a certificate signed by two Officers of
the Company.
"Opinion of Counsel" means a written opinion from legal counsel which
may be in the employ of the Company and who are acceptable to the Trustee.
"Paying Agent" has the meaning provided in Section 2.3.
<PAGE> 33
-23-
"Payment default" has the meaning set forth in Section 6. 1.
"Payment Restriction" has the meaning set forth in Section 4.15.
"Permanent Regulation S Global Security" has the meaning set forth in
Section 2.1.
"Permitted Holders" means Mr. Michael E. Heisley, his spouse, direct
lineal descendants and any trust for the benefit of any of the foregoing.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Securities, the Exchange Securities and
the Indenture (other than any Securities or Exchange Securities issued
pursuant to clause (b)(ii)(B) of Section 4.10);
(ii) Indebtedness outstanding from time to time pursuant to the
Working Capital Facility in an aggregate principal amount not to exceed
$17,000,000 outstanding at any time, plus interest, fees, costs and
expenses from time to time payable under or in connection with the
Working Capital Facility, reduced by any permanent repayments (which are
accompanied by a corresponding permanent commitment reduction)
thereunder;
(iii) Commodity Agreements of the Company; provided, however, that
such Commodity Agreements are entered into to protect the Company from
fluctuations in the prices of commodities;
(iv) Interest Swap Obligations of the Company; provided, however,
that such Interest Swap Obligations are entered into to protect the
Company from fluctuations in interest rates on Indebtedness Incurred in
accordance with this Indenture to the extent the notional principal
amount of such Interest Swap Obligation does not exceed the prin-
<PAGE> 34
-24-
cipal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(v) additional Indebtedness Incurred by the Company or any
Restricted Subsidiary in an aggregate principal amount not to exceed
$5,000,000 outstanding at any time;
(vi) Indebtedness of a Restricted Subsidiary to the Company or to a
Wholly Owned Restricted Subsidiary for so long as such Indebtedness is
held by the Company or a Wholly Owned Restricted Subsidiary in each case
subject to no Lien held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary; provided that if as of any date any Person
other than the Company or a Wholly Owned Restricted Subsidiary owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the Incurrence of Indebtedness
not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vii) Refinancing Indebtedness;
(viii) guarantees by Restricted Subsidiaries of Indebtedness of the
Company permitted under this Indenture; provided, however, such
Restricted Subsidiaries have complied with Section 4.19;
(ix) Indebtedness of the Company under Currency Agreements;
provided, however, that such Currency Agreements are entered into to
protect the Company from fluctuations in currency;
(x) the Class A Preferred Stock and the Class B Preferred Stock;
(xi) the Industrial Revenue Bonds; and
(xii) Non-Contingent Indebtedness of the Company in an aggregate
principal amount not to exceed $2.0 million in any fiscal year which is
incurred to purchase distributorships and distributorship assets.
<PAGE> 35
-25-
"Permitted Investments" means (a) investments in cash and Cash
Equivalents; (b) Investments by the Company or by any Restricted Subsidiary in
any Person that is or will become immediately after such Investment a
Restricted Subsidiary or that will merge or consolidate into the Company or a
Restricted Subsidiary that is not subject to any Payment Restriction; (c) any
Investments in the Company by any Restricted Subsidiary of the Company;
Provided that any Indebtedness evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations in
respect of the Securities and this Indenture; (d) Investments made by the
Company or by its Restricted Subsidiaries as a result of an Asset Sale made in
compliance with Section 4.14 and (e) additional Investments in Unrestricted
Subsidiaries or joint ventures not to exceed $2.0 million at any one time.
"Permitted Liens" means, without duplication, each of the following:
(i) pledges or deposits by such Person under worker's compensation
laws, unemployment insurance laws or other types of social security and
similar legislation (other than the Employee Retirement Income Security
Act of 1974, as amended), or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public statutory
obligations of such Person or deposits to secure surety or appeal bonds
to which such Person is a party, or deposits as security for contested
taxes or import duties or for the payment of rent;
(ii) Liens imposed by law, such as landlords', carriers',
warehousemen's and mechanics' Liens or bankers, Liens incurred in the
ordinary course of business for sums which are not yet due or are being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and for which the Company or any of its
Restricted Subsidiaries have set aside on its books such reserves as may
be required pursuant to GAAP;
<PAGE> 36
-26-
(iii) Liens for taxes not yet subject to penalties for non-payment
or which are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted, if adequate reserve, as may
be required by GAAP, shall have been made therefor;
(iv) Liens in favor of issuers of surety bonds or appeal bonds
issued pursuant to the request of and for the account of such Person in
the ordinary course of its business;
(v) Liens to support trade letters of credit issued in the ordinary
course of business;
(vi) survey exceptions, encumbrances, easements or reservations of,
or rights of others for, rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or other
restrictions on the use of real property which do not in any case
materially detract from the value of the property subject thereto or do
not interfere in any material respect with the ordinary conduct of the
Company or any of its Subsidiaries;
(vii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(viii) Liens in favor of the Company;
(ix) Liens to secure Capitalized Lease Obligations in respect of
Sale and Leaseback Transactions of property or assets not constituting
Collateral to the extent consummated in compliance with the Indenture and
the Security Documents; provided that such Liens do not extend to or
cover any property or assets of the Company or of any of its Restricted
Subsidiaries, other than the property or assets subject to such
Capitalized Lease Obligation;
(x) Liens in respect of Refinancing Indebtedness incurred to
Refinance any of the Indebtedness set forth in
<PAGE> 37
-27-
clause (ix) above; provided that such Liens in respect of such
Refinancing Indebtedness (I) are no less favorable to the Holders and are
not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (II) do not
extend to or cover any properties or assets of the Company or of any of
the Company's Subsidiaries, other than the property or assets that
secured the Indebtedness being Refinanced;
(xi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers, acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other
goods;
(xii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xiii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company, including rights of offset and set-off;
(xiv) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xv) Liens securing Indebtedness under Currency Agreements;
(xvi) Liens securing any Indebtedness under the Working Capital
Facility; provided, however, that, such Liens extend solely to the
categories of collateral which were the subject of Liens securing the
Working Capital Facility as of the Issue Date;
(xvii) Liens securing any Indebtedness under the Industrial Revenue
Bonds; provided, however, that, such Liens
<PAGE> 38
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extend solely to the collateral which were the subject of Liens securing
the Industrial Revenue Bonds as of the Issue Date; and
(xviii) Liens securing Indebtedness permitted under clause (xii) of
the definition of Permitted Indebtedness; provided, however, that such
Liens extend solely to the distributorship assets acquired with such
Indebtedness.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Physical Security" has the meaning provided in Section 2. 1.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Principal" of a debt security means the principal amount of the
security plus, when appropriate, the premium, if any, on the security.
"Prior Liens" has the meaning assigned to such term in each Mortgage.
"Qualified Capital Stock" means any capital stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or IIQIBI, has the meaning specified in
Rule 144A under the Securities Act.
"Real Property" means those real properties listed on Schedule A
hereto.
"Redemption Date" means, with respect to any Security, the Maturity
Date of such Security or the date on which such Security is to be redeemed by
the Company pursuant to the terms of the Securities.
<PAGE> 39
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"Reference Date" has the meaning set forth in Section 4.11.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means (A) any Refinancing by the Company of
Indebtedness of the Company initially Incurred in accordance with Section 4.10
(other than pursuant to clause (ii), (iii), (iv), (v), (vi), (vii), (ix), (x)
or (xii) of the definition of Permitted Indebtedness) or (B) any Refinancing by
any Restricted Subsidiary of the Company of Indebtedness Incurred by such
Subsidiary in accordance with clause (v) of the definition of Permitted
Indebtedness, in each case (A) and (B) that does not (1) result in an increase
in the aggregate principal amount of Indebtedness of such Person as of the date
of such proposed Refinancing (plus the amount of any premium required to be
paid under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company, (y) if
such Indebtedness being Refinanced is subordinate or junior to the Securities,
then such Refinancing Indebtedness shall be subordinate to the Securities at
least to the same extent and in the same manner as the Indebtedness being
Refinanced and (z) such Refinancing Indebtedness is not Incurred more than
three months prior to the complete retirement and defeasance of the
Indebtedness being Refinanced with the proceeds thereof.
"Registrar" has the meaning provided in Section 2.3.
<PAGE> 40
-30-
"Registration Rights Agreement" means the Registration Rights Agreement
dated the Issue Date between the Company and the Initial Purchaser.
"Regulation S" means Regulation S under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Related Business Investment" means any Investment, capital expenditure
or other expenditure by the Company which is related to the business of the
Company and its Restricted Subsidiaries as it is conducted on the date of the
Asset Sale giving rise to the Net Cash Proceeds to be reinvested.
"Release Notice" has the meaning provided in Section 10.4.
"Restricted Global Security" has the meaning set forth in Section 2.1.
"Restoration" has the meaning assigned to such term in each of the
Mortgages but generally means the restoration of all or any portion of the
Collateral in connection with any destruction or condemnation thereof.
"Restricted Payment" has the meaning set forth in Section 4.11.
"Restricted Period" has the meaning set forth in Section 2. 1.
"Restricted Security" has the meaning set forth in Rule 144(a)(3) under
the Securities Act; provided that the Trustee shall be entitled to request and
conclusively rely upon an Opinion of Counsel with respect to whether any
Security is a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with Section 4.18. Any such designation may be revoked by a
<PAGE> 41
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Board Resolution of the Company delivered to the Trustee, subject to the
provisions of Section 4.18.
"Rule 144" means Rule 144 under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"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 Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company
or such Restricted 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.
"SEC" means the Securities and Exchange Commission.
"Security Agreement" means the Security Agreement dated as of the date
hereof between the Company and the Collateral Agent, as the same may be
amended, amended and restated, supplemented or otherwise modified in accordance
with its terms.
"Security Documents" means, collectively, (i) the Security Agreement,
(ii) the Mortgages and (iii) all security agreements, mortgages, deeds of
trust, pledges, collateral assignments and other instruments evidencing or
creating security interests in favor of the Trustee (for its benefit and the
benefit of the Holders) in all or any portion of the Collateral and all other
documents or instruments executed in connection therewith, in each case as
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with their terms.
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"Securities" means the Initial Securities and the Exchange Securities
treated as a single class of securities, as amended or supplemented from time
to time in accordance with the terms hereof, that are issued pursuant to this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Survey" means a survey of any parcel of Real Property (and all
improvements thereon): (i) prepared by a surveyor or engineer licensed to
perform surveys in the state where such property is located, (ii) dated (or
redated) not earlier than six months prior to the date of delivery thereof
(unless there shall have occurred within six months prior to such date of
delivery any exterior construction on the site of such property, in which event
such survey shall be dated (or redated) after the completion of such
construction as of such date of delivery), (iii) certified by the surveyor (in
a manner reasonably acceptable to the title company providing title insurance)
and (iv) complying in all respects with the minimum detail requirements of the
American Land Title Association, or local equivalent, as such requirements are
in effect on the date of preparation of such survey, or that is otherwise
reasonably acceptable to the Trustee (giving consideration to the applicable
transaction).
"Surviving Entity" has the meaning set forth in Section 5. 1.
"Taking" shall have the meaning assigned to such term in the Mortgages.
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"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of
August 30, 1997 between the Company and TFH.
"Temporary Regulation S Global Security" has the meaning set forth in
Section 2.1.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as it may be amended from time to time.
"Trust Moneys" means all cash or Cash Equivalents received by the
Trustee (a) upon the release of property from the Lien of this Indenture and/or
the Security Documents, including all moneys received in respect of the
principal of all purchase money, governmental and other obligations; or (b) as
compensation for or proceeds of the sale of all or any part of the Collateral
taken by eminent domain or purchased by, or sold pursuant to any order of, a
governmental authority, or otherwise disposed of; or (c) pursuant to certain
provisions of the Mortgage; or (d) as proceeds of any other sale or other
disposition of all or any part of the Collateral by or on behalf of the Trustee
or any collection, recovery, receipt, appropriation or other realization of or
from all or any part of the Collateral pursuant to this Indenture or any of the
Security Documents or otherwise; or (e) for application under this Indenture as
provided in this Indenture or any Security Document, or disposition of which is
not otherwise specifically provided for in this Indenture or in any Security
Document; provided that Trust Moneys shall in no event include any property
deposited with the Trustee for any Change of Control Offer or redemption or
defeasance of any Securities.
"Trust Officer" means an officer or assistant officer of the Trustee
assigned to the Corporate Trustee Administration Division, or any successor to
such department or, in the case of a successor trustee, an officer assigned to
the department, division or group performing the corporate trust work of such
successor.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such succes-
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sor, and shall in addition include any Person designated or constituted as a
co-trustee or separate trustee pursuant to Section 7.12 for the limited
purposes of such designation or constitution.
"UCC" means the Uniform Commercial Code as in effect in the
applicable jurisdiction.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 4.18. Any such
designation may be revoked by a Board Resolution of the Company delivered to
the Trustee, subject to the provisions of Section 4.18.
"U.S. Government Obligations" has the meaning provided in Section
8.1(b).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities which normally have the right to
vote in the election of directors are at the time owned directly or indirectly
by the Company or any Wholly owned Restricted Subsidiary.
"Working Capital Facility" means the Amended and Restated Loan and
Security Agreement dated as of October 14, 1997, between the Company and
Congress, as the same may be amended from time to time including any amendment
among the Company, any Subsidiary of the Company and Congress, and any
agreement evidencing the refinancing, modification, replace-
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ment, renewal, restatement, refunding, deferral, extension, substitution,
supplement, reissuance or resale thereof.
SECTION 1.2. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
shall be deemed incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
(a) "Commission" means the SEC;
(b) "indenture securities" means the Securities;
(c) "indenture security holder" means a Securityholder;
(d) "indenture to be qualified" means this Indenture;
(e) "indenture trustee" or "institutional trustee means the Trustee;
and
(f) "obligor" on the indenture securities means the Company, or any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings so assigned to them therein.
SECTION 1.3. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "or" is exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular;
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(d) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other Subdivision; and
(e) unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder
shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with GAAP as in effect from
time to time, applied on a basis consistent with the most recent audited
consolidated financial statements of the Company.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
The Securities and the Trustee's certificates of authentication with
respect thereto shall be substantially in the form set forth in Exhibit A or
Exhibit B annexed hereto, as the case may be, which are hereby incorporated in
and expressly made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, rule, usage or agreement to
which the Company is subject. The Company and the Trustee shall approve the
form of the Securities and any notating legend or endorsement on them. Each
Security shall be dated the date of its issuance and shall show the date of its
authentication. The terms and provisions contained in the Securities shall
constitute, and are expressly made, a part of this Indenture.
The Initial Securities offered and sold in reliance on Rule 144A or to
Institutional Accredited Investors shall be issued initially in the form of one
or more permanent Global Securities in registered form, substantially in the
form set forth in Exhibit A (collectively, and together with their Successor
Securities, the "Restricted Global Security"), with such applicable legends as
are provided for in Exhibit A or Ex-
<PAGE> 47
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hibit M, registered in the name of the Depository or its nominee and deposited
with the Trustee, as custodian for the Depository, duly executed by the Company
and authenticated by the Trustee as hereinafter provided, for credit by the
Depository to the respective accounts of beneficial owners of the Securities
represented thereby (or such other accounts as they may direct). The aggregate
principal amount of the Restricted Global Security may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided.
Securities offered and sold in their initial distribution in reliance
on Regulation S may be initially issued in the form of temporary Global
Securities in fully registered form without interest coupons, substantially in
the form set forth in Exhibit A, with such applicable legends as are provided
for in Exhibit A or Exhibit M. Such temporary Global Securities shall be
registered in the name of the Depository or its nominee and deposited with the
Trustee, as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided, for credit by the
Depository to the respective accounts of the beneficial owners of the
Securities represented thereby (or such other accounts as they may direct),
provided that upon such deposit all such Securities shall be credited to or
through accounts maintained at the Depository by or on behalf of Euroclear or
CEDEL. Until such time as the Restricted Period (as defined below) shall have
expired, such temporary Global Securities, together with their Successor
Securities which are Global Securities other than the Restricted Global
Security, shall be referred to herein as a "Temporary Regulation S Global
Security." After such time as the Restricted Period shall have expired and the
certifications referred to below in the next succeeding paragraph shall have
been provided, interests in such Temporary Regulation S Global Securities shall
be exchanged for interests in like Global Securities, referred to herein
collectively as the "Permanent Regulation S Global Security," substantially in
the form of Security set forth in Exhibit A, with such applicable legends as
are provided for in Exhibit A or Exhibit M. Such Permanent Regulation S Global
Securities shall be regis-
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tered in the name of the Depository or its nominee and deposited with the
Trustee, as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided, for credit to the
respective accounts of the beneficial owners of the Securities represented
thereby (or such other accounts as they may direct). The aggregate principal
amount of the Temporary Regulation S Global Security or the Permanent
Regulation S Global Security may be increased or decreased from time to time by
adjustments made on the records of the Trustee, as custodian for the
Depository, as hereinafter provided. As used herein, the term "Restricted
Period" means the period of 40 days commencing on the day after the later of
(a) the day on which the Securities are first offered to persons other than
distributors (as defined in Regulation S) in reliance on Regulation S and (b)
the Issue Date.
Interests in a Temporary Regulation S Global Security may be exchanged
for interests in a Permanent Regulation S Global Security only after (a) the
expiration of the Restricted Period, (b) delivery by a beneficial owner of an
interest therein to Euroclear or CEDEL of a written certification (an "Owner
Securities Certification") substantially in the form of Exhibit C hereto, and
(c) upon delivery by Euroclear or CEDEL to the Trustee of a written
certification (a "Depository Securities Certification") substantially in the
form attached hereto as Exhibit D. Upon satisfaction of such conditions, the
Trustee will exchange the portion of the Temporary Regulation S Global Security
covered by such certification for interests in a Permanent Regulation S Global
Security. The delivery by such Holder of a beneficial interest in such
Temporary Regulation S Global Security of such certification shall constitute
an irrevocable instruction by such holder to Euroclear or CEDEL, as the case
may be, to exchange such Holder's beneficial interest in the Temporary
Regulation S Global Security for a beneficial interest in the Permanent
Regulation S Global Security upon the expiration of the Restricted Period in
accordance with the next succeeding paragraph.
Upon:
(i) the expiration of the Restricted Period;
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(ii) receipt by Euroclear or CEDEL, as the case may be, of Owner
Securities Certifications described in the preceding paragraph;
(iii) receipt by the Depository of:
(1) written instructions given in accordance with the rules
and procedures of the Depository, Euroclear and CEDEL, in each case
to the extent applicable and as in effect from time to time (the
"Applicable Procedures"), from an Agent Member directing the
Depository to credit or cause to be credited to a specified Agent
Member's account a beneficial interest in a Permanent Regulation S
Global Security in a principal amount equal to that of the
beneficial interest in a corresponding Temporary Regulation S
Global Security for which the necessary certifications have been
delivered; and
(2) a written order given in accordance with the Applicable
Procedures containing information regarding the account of the
Agent Member, and the Euroclear or CEDEL account for which such
Agent Member's account is held, to be credited with, and the
account of the Agent Member to be debited for, such beneficial
interest; and
(iv) (1) receipt by the Trustee of notification from the Depository
of the transactions described in (iii) above and from Euroclear or CEDEL,
as the case may be, of Depository Securities Certifications, and (2)
receipt by the Trustee of an Officers' Certificate stating that the
Restricted Period has expired.
the Trustee, as Registrar, shall instruct the Depository to reduce the
principal amount of such Temporary Regulation S Global Security and to increase
the principal amount of such Permanent Regulation S Global Security, by the
principal amount of the beneficial interest in such Temporary Regulation S
Global Security to be so transferred, and to credit or cause to be credited to
the account of the Person specified in such instruc-
<PAGE> 50
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tions a beneficial interest in such Permanent Regulation S Global Security
having a principal amount equal to the amount by which the principal amount of
such Temporary Regulation S Global Security was reduced upon such transfer.
Securities offered and sold in reliance on Regulation S, and Securities
offered and sold in reliance on Rule 144A or to Institutional Accredited
Investors may be originally issued at the request of the Holders thereof in the
form of permanent certificated Securities in registered form, in substantially
the form set forth in Exhibit A (the "Physical Securities") with appropriate
legends. Beneficial owners of Physical Securities may request registration of
such Physical Securities in their names or the names of their nominees.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
If the Securities are to be issued in the form of Global Securities,
then the Company shall execute and the Trustee shall authenticate and deliver
one or more Global Securities that shall represent the entire principal amount
so issued.
Exchange Securities may be issued only in exchange for a like principal
amount of: (a) Initial Securities pursuant to an Exchange Offer and (b) Class A
Preferred Stock; provided that the conditions for such exchange are met and the
maximum Class A Preferred Stock exchanged does not exceed $10.0 million in
liquidation preference of such Class A Preferred Stock.
The principal of and interest on Book-Entry Securities shall be payable
to the Depository or its nominee, as the case may be, as the sole registered
owner and the sole holder of the Book-Entry Securities represented thereby.
The principal of and interest on Securities in certificated form shall be
payable at the office of the Paying Agent.
<PAGE> 51
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SECTION 2.2. Execution and Authentication.
Two Officers shall execute the Securities on behalf of the Company by
either manual or facsimile signature. The Company's seal shall be impressed,
affixed, imprinted or reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security or at any time
thereafter, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. Such
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Securities for original
issue in an aggregate principal amount not to exceed $60,000,000, (ii) Exchange
Securities from time to time for issue only in exchange for a like principal
amount of Initial Securities and (iii) Exchange Securities from time to time
for issue in exchange for Class A Preferred Stock pursuant to clause (b)(ii)(B)
of Section 4.10 in an aggregate principal amount not to exceed $10,000,000, in
each case upon receipt of an Authentication Order in the form of an Officers,
Certificate signed by two Officers directing the Trustee to authenticate the
Securities and certifying that all conditions precedent to the issuance of the
Securities contained herein and in the Security Documents have been complied
with.
The Officers' Certificate shall specify the amount of Securities to be
authenticated, the date on which the Securities are to be authenticated and the
aggregate principal amount of Securities outstanding on the date of
authentication, whether the Securities are to be Initial Securities or Exchange
Securities. The aggregate principal amount of Securities outstanding at any
time may not exceed $70,000,000, except as provided in Section 2.7.
<PAGE> 52
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The Trustee shall not be required to authenticate Securities if the
issuance of such Securities pursuant to this Indenture will affect the
Trustee's own rights, duties or immunities under the Securities and this
Indenture in a manner which is not reasonably acceptable to the Trustee.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. Such authenticating agent shall
have the same rights and protections as the Trustee in any dealings hereunder
with the Company or with any of the Company's Affiliates.
SECTION 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in the City of New York, State of New York) where
Securities may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency (which shall be located in the Borough of
Manhattan, City of New York, State of New York) where Securities may be
presented or surrendered for payment (the "Paying Agent") and an office or
agency where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
have one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent. Neither the Company
nor any Affiliate thereof may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the forego-
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ing notice, the Trustee shall act as such and shall be entitled to appropriate
compensation in accordance with Section 7.7.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Securities,
until such time as the Trustee has resigned or a successor has been appointed.
The Paying Agent or Registrar may resign upon 30 days' notice to the Company.
SECTION 2.4. Paying Agent To Hold Assets in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all assets held by the Paying Agent for the
payment of principal of or interest on the Securities (whether such assets have
been distributed to it by the Company or any other obligor on the Securities),
and the Company and the Paying Agent shall notify the Trustee of any default by
the Company (or any other obligor on the Securities) in making any such
payment. Money held in trust by the Paying Agent need not be segregated except
as required by law and in no event shall the Paying Agent be liable for any
interest on any money received by it hereunder. The Company at any time may
require the Paying Agent to distribute all assets held by it to the Trustee and
account for any assets distributed and the Trustee may at any time during the
continuance of any Event of Default specified in Section 6.1(a)(i), (ii) or
(iii), upon written request to the Paying Agent, require such Paying Agent to
distribute forthwith all assets so held by it to the Trustee and to account for
any assets distributed. Upon making such distribution, the Paying Agent shall
have no further liability for such assets delivered to the Trustee.
The Company shall cause any Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will
(1) hold all sums held by it for the payment of principal of (and
premium, if any) or interest on the Se-
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curities in trust for the benefit of the Holders entitled thereto until
such sums shall be paid to such Holders or otherwise disposed of as
herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any such payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (and premium,
if any) or interest on any Security and remaining unclaimed for 2 years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Order, or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in an authorized newspaper
in the Borough of Manhattan, City of New York, State of New York, notice that
such money remains unclaimed and that, after a date specified
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therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee at least five Business Days before each Interest Payment
Date, and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the
names and addresses of the Securityholders.
SECTION 2.6. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Physical
Securities are presented to the Registrar or a co-registrar with a request from
the Holder of such Securities to register the transfer or to exchange them for
an equal principal amount of Securities of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested;
provided that every Security presented or surrendered for registration of
transfer or exchange shall be duly endorsed or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar,
duly executed by the Holder thereof or his attorneys duly authorized in
writing. To permit registrations of transfers and exchanges, the Company shall
issue and execute and the Trustee shall authenticate new Securities evidencing
such transfer or exchange at the Registrar's request. No service charge shall
be made to the Securityholder for any registration of transfer or exchange. The
Company may require from the Securityholder payment of a sum sufficient to
cover any transfer taxes or other governmental charge that may be imposed in
relation to a transfer or exchange, but this provision shall not apply to any
exchange pursuant to Section 2.10, 3.6, 4.14, 4.17 or 9.5 (in which events the
Company will be responsible for the payment of such taxes). The Trustee shall
not be required to exchange or
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register a transfer of any Security for a period of 15 days immediately
preceding the first mailing of notice of redemption of Securities to be
redeemed or of any Security selected, called or being called for redemption
except, in the case of any Security where public notice has been given that
such Security is to be redeemed in part, the portion thereof not to be
redeemed.
SECTION 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Registrar or the Trustee
or if the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Holder of such Security furnishes to
the Company and to the Trustee evidence reasonably acceptable to them of the
ownership and the destruction, loss or theft of such Security. If required by
the Trustee or the Company, an indemnity bond shall be posted, sufficient in
the judgment of both to protect the Company, the Trustee or any Paying Agent
from any loss that any of them may suffer if such Security is replaced. The
Company may charge such Holder for the Company's expenses in replacing such
Security and the Trustee may charge the Company for the Trustee's expenses in
replacing such Security. Every replacement Security shall constitute an
additional obligation of the Company.
SECTION 2.8. Outstanding Securities.
The Securities outstanding at any time are all Securities that have
been authenticated by the Trustee except for (a) those cancelled by it, (b)
those delivered to it for cancellation, (c) to the extent set forth in Sections
8.1 and 8.2, on or after the date on which the conditions set forth in Section
8.1 or 8.2 have been satisfied, those Securities theretofore authenticated and
delivered by the Trustee hereunder and (d) those described in this Section 2.8
as not outstanding. A Security does not cease to be outstanding because the
Company or one of its Affiliates holds the Security.
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If a Security is replaced pursuant to Section 2.7 , (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser in whose hands such Security is a legal, valid
and binding obligation of the Company.
If the Paying Agent holds, in its capacity as such, on any Maturity
Date or on any optional redemption date, money sufficient to pay all accrued
interest and principal with respect to such Securities payable on that date and
is not prohibited from paying such money to the Holders thereof pursuant to the
terms of this Indenture, then on and after that date such Securities cease to
be outstanding and interest on them ceases to accrue.
SECTION 2.9. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any declaration of acceleration or notice of
default or direction, waiver or consent or any amendment, modification or other
change to this Indenture, Securities owned by the Company or an Affiliate of
the Company shall be disregarded as though they were not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent or any amendment, modification
or other change to this Indenture, only Securities that the Trustee actually
knows are so owned shall be so disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are prepared and ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Securities in exchange for
temporary Securities. Until such ex-
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change, temporary Securities shall be entitled to the same rights, benefits and
privileges as definitive Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall (subject
to the record-retention requirements of the Exchange Act) dispose of cancelled
Securities unless the Company directs the Trustee to return such Securities to
the Company, and, if so disposed, shall deliver a certificate of disposition
thereof to the Company. The Company may not reissue or resell, or issue new
Securities to replace, Securities that the Company has redeemed or paid, or
that have been delivered to the Trustee for cancellation.
SECTION 2.12. Defaulted Interest.
If the Company defaults on a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent permitted by law) any
interest payable on the defaulted interest, in accordance with the terms
hereof, to the Persons who are Securityholders on a subsequent special record
date, which date shall be at least five Business Days prior to the payment
date. The Company shall fix such special record date and payment date in a
manner satisfactory to the Trustee. At least 15 days before such special
record date, the Company shall mail to each Securityholder of such series a
notice that states the special record date, the payment date and the amount of
defaulted interest, and interest payable on such defaulted interest, if any, to
be paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number or
numbers, and if so, such CUSIP number or numbers shall be included in notices
of redemption or exchange as
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a convenience to Holders; provided, however, that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number or numbers printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities. The Company will promptly notify the Trustee of any change in the
CUSIP number or numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 11:30 A.M. New York City time on each Interest Payment Date
and Maturity Date, the Company shall have deposited with the Paying Agent in
immediately available funds in U.S. dollars sufficient to make cash payments,
if any, due on such Interest Payment Date or Maturity Date, as the case may be.
SECTION 2.15. Book-Entry Provisions for Global Security.
(a) Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Security, and the Depository may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner
of the Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent
of the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a holder of any Security. With respect
to any Global Security deposited with the Trustee as custodian for the
Depository for credit to their respective accounts (or to such other accounts
as they may direct) at Euroclear or CEDEL, the provisions of the "Operating
Procedures of the Euroclear System" and the "Terms and Conditions Governing Use
of Euroclear", and the "Management Regulations" and "Instructions
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to Participants" of CEDEL, respectively, shall be applicable to such Global
Security.
(b) Transfers of a Global Security shall be limited to transfers in
whole or in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Security may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in a Global Security if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for such Global Security and a successor depositary is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request
from the Depository to issue Physical Securities.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depository
or its nominee to the Trustee, as Registrar, for exchange or cancellation as
provided in this Article II. If any Global Security is to be exchanged for
other Securities or cancelled in part, or if a Physical Security is to be
exchanged in whole or in part for a beneficial interest in any Global Security,
such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article II or, if the Trustee is acting as custodian for the
Depository or its nominee (or is party to a similar arrangement) with respect
to such Global Security, the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
cancelled, or the principal amount of such other Security to be so exchanged
for a beneficial interest therein, as the case may be, in each case by means of
an appropriate adjustment made on the records of the Trustee, whereupon the
Trustee, in accordance with the Applicable Procedures, shall instruct the
Depository or its authorized representatives to make a corresponding adjustment
to its records (including by crediting or debiting any Agent
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Member's account as necessary to reflect any transfer or exchange of a
beneficial interest). Upon any such surrender or adjustment of a Global
Security, the Trustee shall, subject to this Article II, authenticate and
deliver any Securities issuable in exchange for such Global Security (or any
portion thereof) to or upon the order of, and registered in such names as may
be directed by, the Depository or its authorized representative. Upon the
request of the Trustee in connection with the occurrence of any of the events
specified in the preceding paragraph or in paragraph (b) above, the Company
shall promptly make available to the Trustee a reasonable supply of Securities
that are not in the form of Global Securities. The Trustee shall be entitled to
rely upon any order, direction or request of the Depository or its authorized
representative which is given or made pursuant to this Article II if such
order, direction or request is given or made in accordance with the Applicable
Procedures.
(d) In connection with the transfer of the entire Global Security to
beneficial owners pursuant to paragraph (b), the Global Security shall be
deemed to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Security, an equal aggregate principal amount of Physical Securities
of authorized denominations.
(e) Any Physical Security constituting a Restricted Security delivered
in exchange for an interest in a Global Security pursuant to paragraph (d)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (d) of Section
2.16, bear the legend regarding transfer restrictions applicable to the
Physical Securities set forth in Exhibit A.
(f) If an Initial Security is a Restricted Security and a Physical
Security, then as provided in this Indenture and subject to the limitations
herein set forth, the Holder, provided it is a Qualified Institutional Buyer,
may exchange such Security for a Book-Entry Security by instructing the Trustee
(by completing the Transferee Certificate in the form of Ex-
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hibit I or J hereto) to arrange for such an Initial Security to be represented
by a beneficial interest in a Global Security in accordance with the customary
procedures of the Depository.
(g) The Holder of a Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which such Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.16. Special Transfer Provisions.
(a) Transfers of Physical Securities to Non-QIB Institutional
Accredited Investors and Non-U.S. Persons. The following provisions shall
apply with respect to the registration of any proposed transfer of a Security
constituting a Restricted Security to any Institutional Accredited Investor
which is not a QIB or to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears
the private placement legend substantially in the form of Exhibit A
hereto ("Private Placement Legend"), if (x) the requested transfer is
after _______________, 1999 or (y) (1) in the case of a transfer to an
Institutional Accredited Investor which is not a QIB (excluding Non-U.S.
Persons), the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit L hereto or (2) in the
case of a transfer to a Non-U.S. Person, the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
Exhibit E hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Security, upon receipt by the Registrar
of (x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the
Registrar's procedures,
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whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical
Securities) a decrease in the principal amount of the Global Security in an
amount equal to the principal amount of the beneficial interest in the Global
Security to be transferred, and (b) the Company shall execute and the Trustee
shall authenticate and deliver one or more Physical Securities of like tenor
and amount.
(b) Transfers of Physical Securities to QIBS. The following
provisions shall apply with respect to the registration of any proposed
transfer of a Security constituting a Restricted Security to a QIB:
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Security stating, or has otherwise advised
the Company and the Registrar in writing, that it is purchasing the
Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is
a QIB within the meaning of Rule 144A, and is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information
and that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in the Global Security, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal amount
of the Global Security in
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an amount equal to the principal amount of the Physical Securities to be
transferred, and the Trustee shall cancel the Physical Securities so
transferred.
(c) Certain Transfers and Exchanges.
(i) Temporary Regulation S Global Security. If the holder of a
beneficial interest in a Temporary Regulation S Global Security wishes at
any time to transfer such interest to a Person who wishes to take
delivery thereof in the form of a beneficial interest in such Temporary
Regulation S Global Security, such transfer may be effected, subject to
the Applicable Procedures, only in accordance with this clause (i). Upon
delivery (a) by a beneficial owner of an interest in a Temporary
Regulation S Global Security to Euroclear or CEDEL, as the case may be,
of an Owner Securities Certification, (b) by the transferee of such
beneficial interest in the Temporary Regulation S Global Security to
Euroclear or CEDEL, as the case may be, of a written certification (a
"Transferee Securities Certification") substantially in the form of
Exhibit E hereto and (c) by Euroclear or CEDEL, as the case may be, to
the Trustee, as Security Registrar, of a Depository Securities
Certification, the Trustee may direct either Euroclear or CEDEL, as the
case may be, to reflect on its records the transfer of a beneficial
interest in the Temporary Regulation S Global Security from the
beneficial owner providing the Owner Securities Certification to the
Person providing the Transferee Securities Certification.
(ii) Restricted Global Security to Temporary Regulation S Global
Security or Permanent Regulation S Global Security. If the holder of a
beneficial interest in the Restricted Global Security wishes at any time
to transfer such interest to a Person who wishes to take delivery thereof
in the form of a beneficial interest in the Temporary Regulation S Global
Security or the Permanent Regulation S Global Security, such transfer may
be effected, subject to the Applicable Procedures, only in accordance
with the provisions of this clause (ii) and clause (vii)
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below. Upon receipt by the Trustee, as Registrar, of (A) written
instructions given by or on behalf of the Depository in accordance with
the Applicable Procedures directing the Trustee to credit or cause to be
credited to a specified Agent Member's account a beneficial interest in
the Temporary Regulation S Global Security or the Permanent Regulation S
Global Security, as the case may be, in a specified principal amount and
to cause to be debited from another specified Agent Member's account a
beneficial interest in the Restricted Global Security in an equal
principal amount and (B) a certificate in substantially the form set
forth (i) in Exhibit F for holders taking delivery in the form of a
beneficial interest in the Temporary Regulation S Global Security or (ii)
in Exhibit G for holders taking delivery in the form of a beneficial
interest in the Permanent Regulation S Global Security signed by or on
behalf of the holder of such beneficial interest in the Restricted Global
Security, the Trustee, as Registrar, shall, subject to clause (vii)
below, reduce the principal amount of the Restricted Global Security, and
increase the principal amount of the Temporary Regulation S Global
Security or the Permanent Regulation S Global Security, as the case may
be, by such specified principal amount.
(iii) Temporary Regulation S Global Security or Permanent Regulation
S Global Security to Restricted Global Security. If the holder of a
beneficial interest in the Temporary Regulation S Global Security or
Permanent Regulation S Global Security at any time, wishes to transfer
such interest to a Person who wishes to take delivery thereof in the form
of a beneficial interest in the Restricted Global Security, such transfer
may be effected, subject to the Applicable Procedures, only in accordance
with this clause (iii) and clause (vii) below; provided that with respect
to any transfer of a beneficial interest in a Temporary Regulation S
Global Security, the transferor and Euroclear or CEDEL, as the case may
be, must have previously delivered an Owner Securities Certification and
a Depository Securities Certification respec-
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tively, with respect to such beneficial interest. Upon receipt by the
Trustee, as Registrar, of (A) written instructions given by or on behalf
of the Depository in accordance with the Applicable Procedures directing
the Trustee to credit or cause to be credited to a specified Agent
Member's account a beneficial interest in the Restricted Global Security
in a specified principal amount and to cause to be debited from another
specified Agent Member's account a beneficial interest in the Temporary
Regulation S Global Security or the Permanent Regulation S Global
Security, as the case may be, in an equal principal amount and (B) a
certificate in substantially the form set forth in Exhibit H signed by or
on behalf of the holder of such beneficial interest in the Temporary
Regulation S Global Security or the Permanent Regulation S Global
Security, as the case may be, the Trustee, as Registrar, shall, subject
to clause (vii) below, reduce the principal amount of such Temporary
Regulation S Global Security or Permanent Regulation S Global Security,
as the case may be, and increase the principal amount of the Restricted
Global Security by such specified principal amount.
(iv) Non-Global Restricted Security to Global Security. If the
holder of a Restricted Security (other than a Global Security) wishes at
any time to transfer all or any portion of such Security to a Person who
wishes to take delivery thereof in the form of a beneficial interest in
the Restricted Global Security, the Temporary Regulation S Global
Security or the Permanent Regulation S Global Security, such transfer may
be effected, subject to the Applicable Procedures, only in accordance
with this clause (iv) and clause (vii) below. Upon receipt by the
Trustee, as Registrar, of (A) such Security and written instructions
given by or on behalf of such Holder as provided in Section 2.15
directing the Trustee to credit or cause to be credited to a specified
Agent Member's account a beneficial interest in the Restricted Global
Security, the Temporary Regulation S Global Security or the Permanent
Regulation S Global Security, as the case may be, in a specified
principal amount equal to the principal amount
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of the Restricted Security (or portion thereof) to be so transferred, and
(B) an appropriately completed certificate substantially in the form set
forth in Exhibit I hereto, if the specified account is to be credited
with a beneficial interest in the Restricted Global Security, or Exhibit
i hereto, if the specified account is to be credited with a beneficial
interest in the Temporary Regulation S Global Security or the Permanent
Regulation S Global Security, signed by or on behalf of such Holder, then
the Trustee, as Registrar, shall, subject to clause (vii) below, cancel
such Restricted Security (and issue a new Security in respect of any
untransferred portion thereof as provided in Section 2.15 and increase
the principal amount of the Restricted Global Security, Temporary
Regulation S Global Security or Permanent Regulation S Global Security,
as the case may be, by the specified principal amount.
(v) Non-Global Permanent Regulation S Security to Restricted Global
Security or Permanent Regulation S Global. If the Holder of a Permanent
Regulation S Security (other than a Global Security) wishes at any time
to transfer all or any portion of such Security to a Person who wishes to
take delivery thereof in the form of a beneficial interest in the
Restricted Global Security or the Permanent Regulation S Global Security,
as the case may be, such transfer may be effected only in accordance with
this clause (v) and subject to the Applicable Procedures. Upon receipt
by the Trustee, as Registrar, of (A) such Security and instructions given
by or on behalf of such Holder as provided in Section 2.15 directing the
Trustee to credit or cause to be credited to a specified Agent Member's
account a beneficial interest in the Restricted Global Security or the
Permanent Regulation S Global Security, as the case may be, in a
principal amount equal to the principal amount of the Security (or
portion thereof) to be so transferred, (B) (i) with respect to a transfer
which is to be delivered in the form of a beneficial interest in the
Restricted Global Security, a certificate in substantially the form set
forth in Exhibit K-1, signed by
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or on behalf of such Holder, and (ii) with respect to a transfer which is
to be delivered in the form of a beneficial interest in the Permanent
Regulation S Global Security, a certificate in substantially the form set
forth in Exhibit K-2, signed by or on behalf of such Holder, then the
Trustee, as Registrar, shall, subject to clause (vii) below, cancel such
Security (and issue a new Security in respect of any untransferred
portion thereof) as provided in Section 2.15 and increase the principal
amount of the Restricted Global Security, or the Permanent Regulation S
Global Security, as the case may be, by the specified principal amount.
(vi) Other Exchange. Securities that are not Global Securities may
be exchanged (on transfer or otherwise) for Securities that are not
Global Securities or for beneficial interests in a Global Security (if
any is then outstanding) only in accordance with such procedures, which
shall be substantially consistent with the provisions of clauses (i)
through (v) above (including the certification requirements intended to
insure that transfers of beneficial interests in a Global Security comply
with Rule 144A, Regulation S, or another exemption from the Securities
Act) and any Applicable Procedures, as may be from time to time adopted
by the Company and the Trustee.
(vii) Interests in Temporary Regulation S Global Security To Be Held
Through Euroclear or CEDEL. Until the later of the expiration of the
Restricted Period and the provision of the Owner Securities Certification
and the Depository Securities Certification, beneficial interests in any
Temporary Regulation S Global Security may be held only in or through
accounts maintained at the Depository by Euroclear or CEDEL (or by Agent
Members acting for the account thereof).
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing
the Private
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Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless (i) the circumstance contemplated by
paragraph (a)(i)(x) of this Section 2.16 exist or (ii) there is delivered to
the Registrar an Opinion of Counsel reasonably satisfactory to the Company and
the Trustee to the effect that neither such legend nor the related restrictions
on transfer are required in order to maintain compliance with the provisions of
the Securities Act.
(e) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
ARTICLE III
REDEMPTION
SECTION 3.1. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 5
of the Securities, it shall notify the Trustee and the Paying Agent in writing
of the Redemption Date and the principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this Section 3.1
at least 45 days before the Redemption Date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that
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such redemption will comply with the conditions contained herein and in the
Securities.
SECTION 3.2. Selection of Securities
To Be Redeemed.
If less than all of the Securities are to be redeemed at any time, the
Trustee shall select the Securities to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which
the Securities being redeemed are listed or, if the Securities are not listed
on a national securities exchange, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided, however, that
no Securities of a principal amount of $1,000 or less shall be redeemed in
part. The Trustee shall make the selection from the Securities outstanding and
not previously called for redemption. The Trustee shall promptly notify the
Company in writing of such Securities selected for redemption and, in the case
of Securities selected for partial redemption, the principal amount to be
redeemed. Securities and portions of them the Trustee selects shall be in
amounts of $1,000 or integral multiples of $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
SECTION 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date, the
Company shall mail or cause the mailing of a notice of redemption by
first-class mail to each Holder of Securities to be redeemed at its registered
address and the Trustee and any Paying Agent.
The notice shall identify the Securities to be redeemed and shall state:
(a) the Redemption Date;
(b) the redemption price and the amount of accrued interest, if any, to be
paid;
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(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price and accrued interest, if
any;
(e) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
of such Securities of such series is to receive payment of the redemption
price upon surrender to the Paying Agent of the Securities redeemed;
(f) if any Security is to be redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of
such Security to be redeemed and that, on or after the Redemption Date,
upon surrender of such Security, a new Security or Securities in
aggregate principal amount equal to the unredeemed portion thereof will
be issued without charge to the Securityholder;
(g) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities estimated to be
outstanding after such partial redemption;
(h) the CUSIP number or numbers, if any, pursuant to Section 2.13;
and
(i) the Section of the Securities or Indenture pursuant to which
such Securities are being redeemed.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense.
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SECTION 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the Redemption Date and at the redemption price.
Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price plus accrued interest to the Redemption Date, but interest
installments whose maturity is on or prior to such Redemption Date will be
payable on the relevant Interest Payment Dates to the Holders of record at the
close of business on the relevant record dates referred to in the Securities.
SECTION 3.5. Deposit of Redemption Price.
At least one Business Day prior to the Redemption Date, the Company shall
deposit with the Paying Agent in immediately available funds money sufficient
to pay the redemption price of and accrued interest on all Securities or
portions thereof to be redeemed on that date.
If any Security surrendered for redemption in the manner provided in the
Securities shall not be so paid on the Redemption Date due to the failure of
the Company to deposit sufficient funds with the Paying Agent, interest will
continue to accrue from the Redemption Date until such payment is made on the
unpaid principal and, to the extent lawful, on any interest not paid on such
unpaid principal, in each case at the date and in the manner provided in the
Securities.
SECTION 3.6. Securities Redeemed in Part.
Upon surrender to the Paying Agent of a Security that is redeemed in part,
the Company shall execute and the Trustee shall authenticate for the Holder a
new Security equal in principal amount to the unredeemed portion of the
Security surrendered.
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ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.
The Company shall pay the principal of and interest on the Securities on
the dates and in the manner provided in the Securities and this Indenture.
An installment of principal or interest shall be considered paid on the
date due if the Trustee or the Paying Agent holds on such date immediately
available funds designated for and sufficient to pay such installment.
SECTION 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency, where Securities may be surrendered for registration
of transfer or exchange or for presentation for payment and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.2.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York, for such purposes. The Company will give
prompt written notice to
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the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
The Company hereby initially designates the corporate trust office of the
Trustee set forth in Section 13.2 as an agency of the Company in accordance
with Section 2.3.
SECTION 4.3. Corporate Existence.
Subject to Article V, the Company shall do or cause to be done, at its own
cost and expense, all things necessary to and will cause each of its
Subsidiaries, to, preserve and keep in full force and effect the corporate or
partnership existence and rights (charter and statutory), licenses and/or
franchises of the Company and each of its Subsidiaries; provided, however, that
subject to Article X and the terms of any Security Document, the Company or any
of its Subsidiaries shall not be required to preserve any such rights, licenses
or franchises if the Board of Directors of the Company shall reasonably
determine that the preservation thereof is no longer desirable in the conduct
of the business of the Company or such Subsidiary and the loss thereof is not
adverse in any material respect to the Holders.
SECTION 4.4. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges (including, without limitation, withholding taxes and any
penalties, interest in addition to taxes) levied or imposed upon its or its
Subsidiaries, income, profits or property and (b) all lawful claims for labor,
materials and supplies that, if unpaid, might by law become a Lien upon the
property of it or any of its Subsidiaries; provided, however, that, subject to
the terms of the applicable Security Documents, the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which contested
amounts adequate reserves have been made.
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SECTION 4.5. Maintenance of Properties; Insurance; Books and Records;
Compliance with Law.
(a) Subject to, and in compliance with, the provisions of Sections 10.3
and 10.4 and to the provisions of the applicable Security Documents, the
Company shall, and shall cause each of its Subsidiaries to, at all times cause
all material properties used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment, and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereto.
(b) The Company shall provide or cause to be provided, for itself and each
of its Subsidiaries, insurance against loss or damage of the kinds that are
adequate and appropriate for the conduct of the business of the Company and
such Subsidiaries in a prudent manner, with reputable insurers or with the
government of the United States of America or an agency or instrumentality
thereof, in such amounts, with such deductibles, and by such methods as shall
be customary for companies similarly situated in the industry.
(c) The Company shall keep and shall cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions which should be recorded therein
and the assets and business of the Company and each Subsidiary of the Company,
in accordance with GAAP consistently applied to the Company and its
Subsidiaries taken as a whole.
(d) The Company shall comply, and shall cause each of its Subsidiaries to
comply with all statutes, laws, ordinances, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing to which it is
subject, non-compliance with which would materially adversely affect the
business, earnings, properties, assets or condition (financial or otherwise) of
the Company and its Subsidiaries taken as a whole.
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SECTION 4.6. Conduct of Business.
The Company and its Restricted Subsidiaries shall not engage in any
business which is not the same as or reasonably similar, ancillary or related
to, or a reasonable extension, development or expansion of, the businesses in
which the Company is engaged on the Issue Date.
SECTION 4.7. Compliance Certificates.
(a) The Company shall deliver to the Trustee, within 45 days after the end
of each of the first three quarters of the Company's fiscal year, and within 90
days after the end of such fiscal year, Officers, Certificates of the Company
stating (i) that a review of the activities of the Company, as the case may be,
during the preceding fiscal quarter or year, as the case may be, has been made
under the supervision of the signing Officers with a view to determining
whether the Company has kept, observed, performed and fulfilled its obligations
under this Indenture, and (ii) that, to the best knowledge of each officer
signing such certificate, the Company, as the case may be, has kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which such
Officers may have knowledge, their status and what action the Company is taking
or proposes to take with respect thereto).
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to Section 4.8 shall be
accompanied by a written statement of the Company's independent public
accountants that in making the examination necessary for certification of such
annual financial statements nothing has come to their attention that would lead
them to believe that the Company has violated any provisions of this Indenture
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall
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not be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) The Company shall, so long as any of the Securities are outstanding,
deliver to the Trustee, forthwith upon any officer becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto.
SECTION 4.8. Reports.
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Securities are outstanding, the Company shall
furnish to the Holders of Securities (i) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if the Company were required to file such Forms, including
a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Subsidiaries, and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all reports that would be filed with the SEC on Form 8-K if the Company
were required to file such reports. In addition, whether or not required by
the rules and regulations of the SEC, the Company will file a copy of all such
information and reports with the SEC for public availability (unless the SEC
will not accept such a filing) and make such information available to investors
who request it in writing. Upon qualification of this Indenture under the TIA,
the Company shall also comply with the provisions of TIA Section 314(a).
(b) For so long as any of the Securities remain outstanding, the Company
shall furnish to the Holders and beneficial Holders of Securities and to
prospective purchasers of Securities designated by the Holders of Transfer
Restricted Securities (as defined in the Registration Rights Agreement) and to
broker dealers, upon their request, the information required to
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be delivered pursuant to Rule 144(d)(4) under the Securities Act.
(c) The Company shall deliver to the Trustee such documents specified in
Section 4.8(a) within 15 days after filing the same with the Commission or, if
the Commission will not accept such filings, within 15 days after the date on
which the Company would have been required to file.
SECTION 4.9. Further Assurance to the Trustee.
The Company shall, upon request of the Trustee, execute and deliver such
further instruments and do such further acts as may reasonably be necessary or
proper to carry out more effectively the provisions of this Indenture and the
Security Documents.
SECTION 4.10. Limitation on Indebtedness.
(a) The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness,
including, without limitation, any Acquired Indebtedness; provided, however,
that the foregoing will not prohibit (i) the Company from Incurring Permitted
Indebtedness and (ii) any Restricted Subsidiary from Incurring Indebtedness
pursuant to clauses (vi), (vii), and (viii) of the definition of Permitted
Indebtedness.
(b) Notwithstanding the foregoing limitations, (A) the Company may Incur
Indebtedness (including, without limitation, Acquired Indebtedness) if (i) no
Default or Event of Default shall have occurred and be continuing on the date
of the proposed Incurrence thereof or would result as a consequence of such
proposed Incurrence; (ii) immediately before and immediately after giving
effect to such proposed Incurrence, the Consolidated Fixed Charge Coverage
Ratio of the Company is at least equal to 2.0 to 1.0. and (B) after January 1,
1999, the Company may issue additional Securities in exchange for the Class A
Preferred Stock if (i) no Default or Event of Default shall have occurred and
be continuing on the date of the proposed issuance thereof or would result as a
consequence of such
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proposed issuance and (ii) immediately before and immediately after giving
effect to such proposed issuance, the Consolidated Fixed Charge Coverage Ratio
of the Company is at least equal to 2.25 to l.O.; provided, however, that (I)
the aggregate principal amount of such additional Securities issued may not
exceed $10,000,000, (II) at the time of issuance of any additional Securities,
the Company shall have delivered to the Trustee a certificate of an Independent
Financial Advisor certifying the Consolidated Fixed Charge Coverage Ratio,
(III) any such issuance of additional Securities shall be in a minimum
principal amount of $1.0 million and (IV) no more than one such exchange may be
effected in any fiscal quarter.
(c) The Company shall not, directly or indirectly, in any event Incur any
Indebtedness which by its terms (or by the terms of any agreement governing
such Indebtedness) is subordinated to any other Indebtedness of the Company
unless such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Securities to
the same extent and in the same manner as such Indebtedness is subordinated
pursuant to subordination provisions that are most favorable to the holders of
any other Indebtedness of the Company.
SECTION IV.11. Limitation on Restricted
Payments.
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or
make any distribution (other than dividends or distributions payable solely in
Qualified Capital Stock of the Company or through increases in the liquidation
preferences on such Qualified Capital Stock) on shares of the Company's Capital
Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Company, or any warrants,
rights or options to acquire shares of any class of such Capital Stock, other
than through the exchange therefor solely of Qualified Capital Stock of the
Company or warrants, rights or options to acquire Qualified Capital Stock of
the Company, (c) make any principal payment on, purchase, defease, redeem,
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prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of the Company that is subordinate or junior in right
of payment to the Securities or (d) make any Investment (other than Permitted
Investments) in any Person (each of the foregoing prohibited actions set forth
in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"),
if at the time of such proposed Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default has occurred and is
continuing or would result therefrom, or (ii) the Company is not able to Incur
at least $1.00 of additional Indebtedness in accordance, with the Consolidated
Fixed Charge Coverage Ratio test of paragraph (b) of Section 4.10 (as if such
Restricted Payment had been made as of the first day of the Four Quarter
Period), or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined reasonably and in good faith by the board of
directors of the Company) exceeds or would exceed the sum of: (A) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus loot of such loss) of the Company during the period
(treating such period as a single accounting period) earned after the Issue
Date and on or prior to the last day of the last fiscal quarter preceding the
date of the proposed Restricted Payment (the "Reference Date"); plus (B) 100%
of the aggregate net cash proceeds received by the Company from any Person
(other than a Restricted Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date and on or prior to the Reference Date of Qualified
Capital Stock of the Company; plus (C) without duplication of any amounts
included in clause (iii)(B) above, 100% of the aggregate net cash proceeds of
any equity contribution received by the Company from a holder of the Company's
Capital Stock; plus (D) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, interest payments,
repayments of loans or advances, or other transfers of cash, in each case to
the Company or to any Restricted Subsidiary of the Company from Unrestricted
Subsidiaries (but
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without duplication of any such amount included in calculating cumulative
Consolidated Net Income of the Company), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (in each case valued as provided in
Section 4.18), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary and which was treated as a
Restricted Payment under this Indenture; plus (E) without duplication of the
immediately preceding subclause (D), an amount equal to the lesser of the cost
or net cash proceeds received upon the sale or other disposition of any
Investment made after the Issue Date which had been treated as a Restricted
Payment (but without duplication of any such amount included in calculating
cumulative Consolidated Net Income of the Company); plus (F) $1,000,000.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend or
redemption payment within 60 days after the date of declaration of such
dividend or the applicable redemption if the dividend or redemption payment, as
the case may be, would have been permitted on the date of declaration; (2) if
no Default or Event of Default shall have occurred and be continuing, the
acquisition of any shares of Capital Stock of the Company through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Restricted Subsidiary of the Company) of shares of Qualified Capital
Stock of the Company or warrants, options or rights to acquire Qualified
Capital Stock; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Securities, either (A) solely
in exchange for (I) shares of Qualified Capital Stock of the Company or (II)
Indebtedness of the Company which has a Weighted Average Life to Maturity that
is greater than the Weighted Average Life to Maturity of the Indebtedness being
acquired and is subordinate to the Securities at least to the same extent and
in the same manner as the Indebtedness being acquired, or (B) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Re-
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stricted Subsidiary of the Company) of (I) shares of Qualified Capital Stock of
the Company or (II) Refinancing Indebtedness; (4) the issuance of additional
Class A Preferred Stock as dividends on the Class A Preferred Stock; and (5)
the issuance of additional Securities in exchange for Class A Preferred Stock
to the extent permitted under clause (c) under Section 4.10. In determining the
aggregate amount of Restricted Payments made subsequent to the Issue Date in
accordance with clause (iii) of the immediately preceding paragraph, amounts
expended pursuant to clauses (1), (2) and (5) shall be included in such
calculation.
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 complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal
quarterly financial statements.
SECTION 4.12. Limitation on Sale and Leaseback
Transactions.
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, enter into any Sale and Leaseback Transaction.
Notwithstanding the foregoing, the Company may enter into a Sale and Leaseback
Transaction involving only the sale or transfer of assets acquired after the
Issue Date and not constituting Collateral if: (i) after giving pro forma
effect to any such Sale and Leaseback Transaction, the aggregate amount of
Attributable Debt for all Sale and Leaseback Transactions effected pursuant to
this Section 4.12 is less than $5,000,000; (ii) the net proceeds of such Sale
and Leaseback Transaction are at least equal to the fair market value of such
property (as determined by the Company's Board of Directors); (iii) the
aggregate rent payable (exclusive of the interest component thereof) 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 (as determined by the Company's Board of Directors); and
(iv) the Company shall apply the Net
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Cash Proceeds of the sale as provided under Section 4.14, in the manner
provided by the provisions of such covenant.
SECTION 4.13. Limitation on Liens.
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist or remain in effect any Liens (i) upon any item of Collateral
other than the Liens granted to the Trustee (for the benefit of the Holders)
pursuant to this Indenture and the Security Documents and the other Liens
expressly permitted by the applicable Security Documents and (ii) upon any
other properties or assets of the Company or of any of its Restricted
Subsidiaries whether owned on the Issue Date or acquired after the Issue Date,
or on any proceeds therefrom, or assign or otherwise convey any right to
receive income or profits thereon other than, with respect to this clause (ii),
(A) Liens existing on the Issue Date to the extent and in the manner such Liens
are in effect on the Issue Date and (B) Permitted Liens.
SECTION 4.14. Limitation on Sale of Assets.
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, consummate any Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, 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 in such Asset Sale; (ii) at least 80!k of
the consideration received by the Company or such Restricted Subsidiary, as the
case may be, from such Asset Sale shall be in the form of cash or Cash
Equivalents and is received at the time of such disposition; (iii) if such
Asset Sale involves Collateral, (x) such Asset Sale is not between the Company
and any of its Subsidiaries or between Subsidiaries of the Company and (y) the
Company shall cause the cash consideration received in respect thereof to be
deposited in the Collateral Account as and when received by the Company or by
any Subsidiary of the Company and shall otherwise be in compliance with the
provisions described under Section 11.3; and (iv) the Company or such
Restricted Subsidiary shall apply
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the Net Cash Proceeds of such Asset Sale within 270 days of receipt thereof, as
follows:
(a) first, to the extent such Net Cash Proceeds are received from an
Asset Sale not involving the sale, transfer or disposition of Collateral
("Non-Collateral Proceeds"), to repay any Indebtedness secured by the
assets involved in such Asset Sale or otherwise required to be repaid
with the proceeds thereof; provided that in the event any Net Cash
Proceeds received in respect thereof are used to repay indebtedness
outstanding under any revolving credit or other working capital type
facilities (but excluding the Working Capital Facility) such facility is
permanently reduced by the amounts thereof;
(b) second, with respect to any Non-Collateral Proceeds remaining
after application pursuant to the preceding paragraph (a) and any Net
Cash Proceeds received from an Asset Sale involving Collateral
("Collateral Proceeds" and, together with such remaining Non-Collateral
Proceeds, the "Available Proceeds Amount"), the Company shall make an
offer to purchase (the "Asset Sale Offer") from all Holders, up to a
maximum principal amount (expressed as an integral multiple of $1,000) of
Securities equal to the Available Proceeds Amount at a purchase price
equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided that the
Company will not be required to apply pursuant to this paragraph (b) Net
Cash Proceeds received from any Asset Sale if, and only to the extent
that, such Net Cash Proceeds are applied to a Related Business
Investment, (other than an investment in inventory or other property not
constituting Collateral or a category of Collateral) within 270 days of
such Asset Sale and the property and assets so acquired are made subject
to the Lien of this Indenture and the applicable Security Documents
pursuant to the provisions described under Section 11.3 provided, that,
any Non-Collateral Proceeds included in the Available Proceeds Amount,
may be invested in inventory or other property not constituting
Collateral (or a
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category of Collateral) and any property so acquired need not be made
subject to the Lien under the Indenture. if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary of the
Company, as the case may be, 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 Cash Proceeds thereof shall be applied in accordance
with this Section 4.14. The Company may defer the Asset Sale Offer until
there is an aggregate unutilized Available Proceeds Amount equal to or in
excess of $3,500,000 resulting from one or more Asset Sales (at which
time, the entire unutilized Available Proceeds Amount, and not just the
amount in excess of $3,500,000, shall be applied as required pursuant to
this paragraph). To the extent the Asset Sale Offer is not fully
subscribed to by Holders, the Company may obtain a release of the
unutilized portion of the Available Proceeds Amount from the Lien of the
Security Documents; and
(c) all Net Proceeds and all Net Awards required to be delivered to
the Trustee or the Collateral Agent pursuant to any Security Document shall
constitute Trust Moneys and shall, to the extent received by the Company,
be delivered by the Company to the Collateral Agent contemporaneously with
receipt by the Company and be deposited in the Collateral Account. Net
Proceeds and Net Awards so deposited that are required to be applied or
may be applied by the Company to effect a Restoration of the affected
Collateral under the applicable Security Document may be withdrawn from
the Collateral Account under this Indenture, only in accordance with the
Indenture. Net Proceeds and Net Awards so deposited that are not required
to be applied to effect a Restoration of the affected Collateral under the
applicable Security Document may only be withdrawn in accordance with this
Indenture. All Collateral Proceeds shall constitute Trust Moneys and
shall be delivered by the Company to the Collateral Agent and shall
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be deposited in the Collateral Account in accordance with this
Indenture.
The Company shall provide the Trustee with notice of an Asset Sale
Offer at least 30 days before any notice of any Asset Sale Offer is mailed to
Holders of the Securities (unless shorter notice is acceptable to the Trustee).
Notice of an Asset Sale offer shall be mailed by the Company to all
Holders (at their last registered address) with a copy to the Trustee and
Paying Agent not less than 30 days nor more than 60 days before the Asset Sale
Payment Date. The Asset Sale Offer shall remain open from the time of mailing
for at least 20 Business Days and until at least 5:00 p.m., New York City time,
on the Asset Sale Payment Date. The notice, which shall govern the terms of
the Asset Sale Offer, shall include such disclosures as are required by law and
shall state:
(i) that the Asset Sale Offer is being made pursuant to this Section
4.14;
(ii) the purchase price (including the amount of accrued interest, if
any) for each Security and the Asset Sale Payment Date;
(iii) that any security not tendered or accepted for payment will
continue to accrue interest in accordance with the terms thereof;
(iv) that, unless the Company defaults on making the payment, any
Security accepted for payment pursuant to the Asset Sale Offer shall cease
to accrue interest after the Asset Sale Payment Date;
(v) that Holders electing to have Securities purchased pursuant to an
Asset Sale Offer will be required to surrender their Securities to the
Paying Agent at the address specified in the notice prior to 5:00 p.m.,
New York City time, on the Asset Sale Payment Date and must complete any
form letter of transmittal proposed by the Company and acceptable to the
Trustee and the Paying Agent;
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(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than 5:00 p.m., New York City time, on
the Asset Sale Payment Date, a tested telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of
Securities the Holder delivered for purchase, the Security certificate
number (if any) and a statement that such Holder is withdrawing his
election to have such Securities purchased;
(vii) that if Securities in a principal amount in excess of the
Available Proceeds Amount are tendered pursuant to the Asset Sale Offer,
the Company shall purchase Securities on a pro rata basis among the
Securities tendered (with such adjustments as may be deemed appropriate by
the Company so that only Securities in denominations of $1,000 or integral
multiples of $1,000 shall be acquired);
(viii) that Holders whose Securities are purchased only in part will
be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(ix) the instructions that Holders must follow in order to tender
their Securities.
On or before the Asset Sale Payment Date, the Company shall (i) accept
for payment, on a pro rata basis among the Securities (subject to adjustment as
contemplated by clause (vii) above), Securities or portions thereof tendered
pursuant to the Asset Sale Offer, (ii) cause the Trustee to liquidate the
necessary amount of Permitted Investments and to deposit with the Paying Agent
on the Asset Sale Payment Date money, in immediately available funds, in an
amount sufficient to pay the purchase price of all Securities or portions
thereof so tendered and accepted and (iii) deliver to the Paying Agent the
Securities so accepted together with an Officers' Certificate setting forth the
Securities or portions thereof tendered to and accepted for payment by the
Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the purchase price, and
the Trus-
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tee shall promptly authenticate and mail or deliver to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. To the extent an Asset Sale
Offer is not fully subscribed to by the Holders, the Company may retain (free
and clear of the Lien of this Indenture and the Security Documents) any
unutilized portion of the Available Proceeds Amount. The Paying Agent shall
promptly deliver to the Company the balance of any such Trust Moneys held by
the Paying Agent after payment to the holders of Securities as aforesaid.
Notwithstanding anything herein to the contrary, in no event shall the Trustee
be liable for any loss incurred as a result of the liquidation of any Permitted
Investments absent its gross negligence or willful misconduct.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to the
Asset Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.14, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.14 by virtue
thereof.
(d) No transaction or action otherwise permitted under this Section
4.14 shall occur until the Trustee shall have received an Officers' Certificate
and an opinion of Counsel as to (i) the Company's compliance with this Section
4.14 and with the Security Documents and (ii) the fulfillment of all conditions
precedent to such transaction or action.
The Company will comply with the requirements of 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 Securities pursuant to an Asset Sale Offer. To the extent
that the provisions of any securities laws or regulations conflict with this
Section 4.14 of the Indenture, the Company shall comply with the applicable
securities laws and regulations and
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shall not be deemed to have breached its obligations under this Section
4.14 of the Indenture by virtue thereof.
SECTION 4.15. Limitation on Dividend and other Payment Restrictions
Affecting Subsidiaries.
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on its Capital Stock; (b) make loans or advances or pay any
Indebtedness or other obligation owed to the Company or to any other Restricted
Subsidiary; (c) guarantee any Indebtedness or any other obligation of the
Company or any Restricted Subsidiary; or (d) transfer any of its property or
assets to the Company or to any other Restricted Subsidiary of the Company
(each such encumbrance or restriction, a "Payment Restriction"), except for
such encumbrances or restrictions existing under or by reason of: (1)
applicable law; (2) this Indenture and the Security Documents; (3) customary
nonassignment provisions of any contract or any lease governing a leasehold
interest of any Restricted Subsidiary of the Company; (4) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to such Restricted Subsidiary, or the properties or assets of such
Restricted Subsidiary, other than the Person or the properties or assets of the
Person so acquired; (5) agreements existing on the Issue Date to the extent and
in the manner such agreements are in effect on the Issue Date; (6) customary
restrictions with respect to a Restricted Subsidiary of the Company pursuant to
an agreement that has been entered into for the sale or disposition of Capital
Stock or assets of such Restricted Subsidiary to be consummated in accordance
with the terms of this Indenture solely in respect of the assets or Capital
Stock to be sold or disposed of; (7) any instrument governing a Permitted Lien,
to the extent and only to the extent such instrument restricts the transfer or
other disposition of assets subject to such Permitted Lien; or (8) an agreement
governing Refinancing Indebted-
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ness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (2), (4) or (5) above; Provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such Refinancing Indebtedness are no less favorable to the
Holders in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in the applicable
agreement referred to in such clause (2), (4) or (5) .
SECTION 4.16. Limitation on Transactions with Affiliates.
(a) The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, conduct any business or enter into any transaction or series of
transactions with or for the benefit of any of their Affiliates (each an
"Affiliate Transaction"), except in good faith and on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those
that could have been obtained in a comparable transaction on an arms-length
basis from a Person not an Affiliate of the Company or such Subsidiary. All
Affiliate Transactions (and each series of related Affiliate Transactions which
are similar or part of a common plan) involving aggregate payments or other
property with a fair market value in excess of $1,000,000 shall be approved by
the Board of Directors of the Company, such approval to be evidenced by a Board
Resolution stating that such board of directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Subsidiary of the Company enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $5,000,000, the Company or such
Subsidiary shall, prior to the consummation thereof, obtain a favorable opinion
as to the fairness of such transaction or series of related transactions to the
Company or the relevant Subsidiary, as the case may be, from a financial point
of view, from an Independent Financial Advisor and promptly file the same with
the Trustee.
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(b) The foregoing restrictions shall not apply to (i) reasonable fees and
compensation paid to and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Subsidiary as determined in good
faith by the Company's Board of Directors or senior management; (ii)
transactions exclusively between or among the Company and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned
Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by this Indenture; (iii) Restricted Payments permitted by this
Indenture; (iv) payments made under the Tax Sharing Agreement as in effect on
the Issue Date or any amendment thereto or replacement agreement thereto so
long as any such amendment or replacement is no less favorable to Holders than
the original agreement as in effect on the Issue Date; and (v) management fees
payable to Affiliates of the Company not to exceed $200,000 per annum in the
aggregate.
SECTION 4.17. Change of Control.
In the event of a Change of Control (the date of such occurrence, the
"Change of Control Date"), the Company shall notify the Trustee and the holders
of Securities in writing of such occurrence and shall make an offer to purchase
(the "Change of Control Offer") on a Business Day (the "Change of Control
Payment Date") not later than 30 days following the Change of Control Date, all
Securities then outstanding at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the Change of
Control Payment Date.
Notice of a Change of Control Offer shall be mailed by the Company not
less than 30 days nor more than 45 days before the Change of Control Payment
Date to the holders of Securities at their last registered addresses with a
copy to the Trustee and the Paying Agent. The Change of Control Offer shall
remain open from the time of mailing for at least 20 Business Days and until
5:00 p.m., New York City time, on the day prior to the Change of Control
Payment Date (the "Termination Date"). The notice, which shall govern the
terms of the
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Change of Control Offer, shall include such disclosures as are required
by law and shall state:
(a) that a Change of Control Offer is being made pursuant to this
Section 4.17 and that all Securities will be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Security and the Change of Control Payment Date;
(c) that any Security not tendered for payment will continue to
accrue interest in accordance with the terms thereof;
(d) that, unless the Company defaults on making the payment, any
Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(e) that Holders electing to have Securities purchased pursuant to a
Change of Control Offer will be required to surrender their Securities to
the Paying Agent at the address specified in the notice prior to 5:00
p.m., New York City time, on the Change of Control Payment Date and must
complete any form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;
(f) that Holders of Securities will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the Termination Date, a tested telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
Securities the Holder delivered for purchase, the Security certificate
number (if any) and a statement that such Holder is withdrawing his
election to have such Securities purchased;
(g) that Holders whose Securities are purchased only in part will be
issued Securities equal in principal
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amount to the unpurchased portion of the Securities surrendered;
(h) the instructions that Holders must follow in order to tender
their Securities; and
(i) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect to pro
forma historical financial information after giving effect to such Change
of Control, information regarding the Persons acquiring control and such
Persons, business plans going forward).
On the Termination Date the Company shall accept for payment
Securities or portions thereof tendered pursuant to the Change of Control
Offer. on the Change of Control Payment Date, (i) deposit with the Paying Agent
money sufficient to pay the purchase price of all Securities or portions
thereof so tendered and accepted and (ii) deliver to the Trustee the Securities
so accepted together with an Officers, Certificate setting forth the Securities
or portions thereof tendered to and accepted for payment by the Company. The
Paying Agent shall promptly mail or deliver to the Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Security equal
in principal amount to any unpurchased portion of the Security surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Company
to the Holder thereof.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e)-1 of the Exchange Act, and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
a Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 4.17, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 4.17 by virtue
thereof.
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SECTION 4.18. Limitation on Restricted and Unrestricted Subsidiaries.
The Board of Directors of the Company may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that (i) any such redesignation shall be deemed to be an incurrence as
of the date of such redesignation by the Company and its Restricted
Subsidiaries of the Indebtedness (if any) of such redesignated Subsidiary for
purposes of Section 4.10 and (ii) unless such redesignated Subsidiary shall not
have any Indebtedness outstanding, other than Indebtedness which would be
Permitted Indebtedness, no such designation shall be permitted if immediately
after giving effect to such redesignation and the incurrence of any such
additional Indebtedness the Company could not incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.10.
The Board of Directors of the Company also may, if no Default or Event of
Default shall have occurred and be continuing or would arise therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if (i)
such designation is at that time permitted under Section 4.11 and (ii)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant
to Section 4.10. Any such designation by the Board of Directors shall be
evidenced to the Trustee by the filing with the Trustee of a certified copy of
the resolution of the Board of Directors giving effect to such designation or
redesignation and an Officers, Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth in
reasonable detail the underlying calculations.
For purposes of Section 4.11, (i) an "Investment" shall be deemed to have
been made at the time any Restricted Subsidiary is designated as an
Unrestricted Subsidiary in an amount (proportionate to the Company's equity
interest in such Subsidiary) equal to the net worth of such Restricted
Subsidiary at the time that such Restricted Subsidiary is designated
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as an Unrestricted Subsidiary; (ii) at any date the aggregate amount of
all Restricted Payments made as Investments since the Issue Date shall exclude
and be reduced by an amount (proportionate to the Company's equity interest in
such Subsidiary) equal to the net worth of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary,
not to exceed, in the case of any such redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the amount of Investments previously
made by the Company and its Restricted Subsidiaries in such Unrestricted
Subsidiary (in each case (i) and (ii) "net worth" to be calculated based upon
the fair market value of the assets of such Subsidiary as of any such date of
designation); and (iii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer.
Notwithstanding the foregoing, the Board of Directors may not designate
any Subsidiary of the Company to be an Unrestricted Subsidiary if, after such
designation, (a) the Company or any Restricted Subsidiary (i) provides credit
support for, or a guarantee of, any Indebtedness of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness) or (ii)
is directly or indirectly liable for any Indebtedness of such Subsidiary or (b)
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any Restricted Subsidiary which is not a Subsidiary of the
Subsidiary to be so designated.
Subsidiaries of the Company that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. Notwithstanding any provisions of this Section 4.18,
all Subsidiaries of an Unrestricted Subsidiary will be Unrestricted
Subsidiaries.
SECTION 4.19. Limitation on Guarantees by Subsidiaries.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
Incur, assume, guarantee or in
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any other manner become liable with respect to any Indebtedness,
unless, in any such case (a) such Restricted Subsidiary executes and delivers a
supplemental indenture to this Indenture, providing a guarantee of payment of
the Securities by such Restricted Subsidiary (the "Guarantee") and (b) if such
assumption, guarantee or other liability of such Restricted Subsidiary is
provided in respect of Indebtedness that is expressly subordinated to the
Securities, the guarantee or other instrument provided by such Restricted
Subsidiary in respect of such subordinated Indebtedness shall be subordinated
to the Guarantee pursuant to subordination provisions no less favorable in all
material respects to the Holders of the Securities than those contained in this
Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Securities shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was
executed and delivered pursuant to the preceding paragraph; (ii) any sale or
other disposition (by merger or otherwise) to any Person which is not a
Restricted Subsidiary of the Company, of all of the Company's Capital Stock in,
or all or substantially all of the assets of, such Restricted Subsidiary;
provided that (a) such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of this Indenture and (b) such
assumption, guarantee or other liability of such Restricted Subsidiary has been
released by the holders of the other Indebtedness so guaranteed; or (iii) the
redesignation of such Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with the terms of this Indenture.
SECTION 4.20. Impairment of Security Interest.
Neither the Company nor any of its Subsidiaries shall take or omit to take
any action which action or omission would have the result of impairing the
security interest in the Collateral granted to the Collateral Agent, for the
benefit of the
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Trustee and for the benefit of the Holders, and the Company shall not
grant to any Person, or suffer any Person to have (other than to the Trustee
for the benefit of the Trustee and the Holders) any interest whatsoever in the
Collateral, except as otherwise permitted by this Indenture and by the Security
Documents. Neither the Company nor any of its Subsidiaries will enter into any
agreement or instrument that by its terms requires the proceeds received from
any sale of Collateral to be applied to repay, redeem, defease or otherwise
acquire or retire any Indebtedness of any Person, other than Permitted Liens
pursuant to this Indenture, the Securities and the Security Documents.
SECTION 4.21. Conflicting Agreements.
The Company shall not, and shall not permit any of its Subsidiaries to,
enter into any agreement or instrument that by its terms expressly (i)
prohibits the Company from making any payments on or in respect of the
Securities in accordance with the terms thereof and of this Indenture, as in
effect from time to time, or (ii) requires that the proceeds received from the
sale of any Collateral be applied to repay, redeem or otherwise retire any
Indebtedness of any Person other than the Indebtedness represented by the
Securities, except as expressly permitted by this Indenture or the Security
Documents.
SECTION 4.22. Limitation on Amendments to Certain Documents.
The Company shall not, and shall not permit any Subsidiary of the Company
to, amend, modify or supplement, or permit or consent to any amendment,
modification or supplement of, any of the Security Documents in any way which
would be adverse to the Holders of the Securities or which would constitute a
Default under this Indenture or a Default under any Security Document. The
Company will not amend, supplement or modify any documents governing the terms
of the Class A Preferred Stock unless any such amendment, supplement or
modification is no less favorable to the Holders than the terms thereof on the
Issue Date.
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SECTION 4.23. Real Property.
Prior to the authentication and delivery of any Securities pursuant to
Section 2.2, the Company will execute and deliver to the Trustee for the
benefit of the Holders a Mortgage, as required or allowed by the law of the
applicable jurisdiction, with respect to each Real Property listed on Schedule
A attached hereto and incorporated herein by reference. The Trustee shall not
have any responsibility to determine the sufficiency for the purposes of this
Indenture of any Mortgage so executed and delivered.
SECTION 4.24. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent permitted by law) that it will not at
any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other
law that would prohibit or forgive the Company from paying all or any portion
of the principal of or interest on the Securities as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent permitted by
law) each of the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. When Company May Merge, Etc.
The Company shall not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or other-
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wise dispose of (or cause or permit any Restricted Subsidiary to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's assets (determined on a consolidated basis for the Company
and the Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless:
(i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance, transfer or lease the properties and assets of the
Company and of the Restricted Subsidiaries substantially as an entirety
(the "Surviving Entity") (x) shall be a corporation organized and validly
existing under the laws of the United States of America or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the
Trustee), executed and delivered to the Trustee, the due and punctual
payment of the principal of, and premium, if any, and interest on all of
the Securities and the performance of every covenant of the Securities,
the Indenture, the Security Documents and the Registration Rights
Agreement on the part of the Company to be performed or observed and the
Company shall have taken all steps necessary or reasonably requested by
the Trustee to protect and perfect the security interests granted or
purported to be granted under the Security Documents;
(ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) of this Section 5.1 (including
giving effect to any Indebtedness and Acquired Indebtedness Incurred or
anticipated to be Incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be,
(i) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction and (ii) shall be able to Incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Fixed Charge
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Coverage Ratio test of Section 4.10(b); provided that in determining
the Consolidated Fixed Charge Coverage Ratio of the resulting transferee
or surviving Person, such ratio shall be calculated as if the transaction
(including the Incurrence of any Indebtedness or Acquired Indebtedness)
took place on the first day of the Four Quarter Period;
(iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) of this
Section 5.1 (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness Incurred or anticipated to be
Incurred and any Lien granted in connection with or in respect of the
transaction) no Default and no Event of Default shall have occurred or be
continuing; and
(iv) the Company or the Surviving Entity shall have delivered to the
Trustee an Officers, Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating to
such transaction have been satisfied; provided, however, that such counsel
may rely, as to matters of fact, on a certificate or certificates of
officers of the Company.
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 Restricted
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.
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SECTION 5.2. Successor Entity Substituted.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made will succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor had been named as the Company therein, and
thereafter (except in the case of a sale, assignment, transfer, lease,
conveyance or other disposition) the predecessor corporation will be relieved
of all further obligations and covenants under this Indenture, the Securities
and the Security Documents.
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
(a) An "Event of Default" occurs if:
(i) the Company fails to pay interest (including any Additional
Interest) on any Security for a period of 30 days or more after such
interest becomes due and payable; or
(ii) the Company fails to pay the principal on any Security, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Securities
tendered pursuant to a Change of Control Offer or an Asset Sale Offer); or
(iii) the Company defaults in the observance or performance of any
other covenant or agreement contained in this Indenture or any Security
Document which default continues for a period of 60 days after the Company
receives written notice specifying the default from the Trustee or
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from Holders of at least 25% in principal amount of outstanding
Securities (except in the case of a default with respect to Sections 4.14,
4.17, or 5.1, which will constitute Events of Default with notice but
without passage of time); or
(iv) (A) the Company defaults under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness of the Company or of any Restricted
Subsidiary of the Company (or the payment of which is guaranteed by the
Company or any Restricted Subsidiary of the Company), whether such
Indebtedness or guarantee now exists, or is created after the Issue Date,
which default (a) is caused by a failure to pay at final maturity the
principal of or premium, if any, on such Indebtedness after any applicable
grace period provided in such Indebtedness on the date of such default (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 under which there has been a payment
default or the maturity of which has been so accelerated, aggregates at
least $3,000,000; or
(v) one or more judgments in an aggregate amount in excess of
$3,000,000 (which are not covered by third-party insurance as to which the
insurer has not disclaimed coverage) shall be rendered against the Company
or any of its Material Subsidiaries and such judgments remain
undischarged, or unstayed or unsatisfied for a period of 60 days after
such judgment or judgments become final and non-appealable; or
(vi) the Company or any of its Material Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
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(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors or
(E) shall generally not pay its debts when such debts
become due or shall admit in writing its inability to pay
its debts generally; or
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Material Subsidiaries in an involuntary case or proceeding,
(B) appoints a Custodian of the Company or any of its
Material Subsidiaries for all or substantially all of its
properties, or
(C) orders the liquidation of the Company or any of
its Material Subsidiaries,
and in each case the order or decree remains unstayed and in effect for 60
days; provided, however, that if the entry of such order or decree is appealed
and dismissed on appeal then the Event of Default hereunder by reason of the
entry of such order or decree shall be deemed to have been cured; or
(viii) any Guarantee executed and delivered by a Restricted Subsidiary
providing a guarantee of the payment and performance of the Company's
obligations under the Indenture and the Securities ceases to be in full
force and effect (other than in accordance with its terms) or any of the
Security Documents cease to be in full force and ef-
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fect (other than in accordance with their respective terms), or any of
the Security Documents cease to give the Trustee the Liens, rights, powers
and privileges purported to be created thereby, or any such Guarantee or
Security Document is declared null and void, or the Company denies any of
its obligations under any such Guarantee or Security Document; or
(b) Subject to the provisions of Sections 7.1 and 7.2, the Trustee
shall not be charged with knowledge of any Event of Default unless written
notice thereof shall have been given to a trust officer having knowledge of the
Company or the issuance at the corporate trust office of the Trustee by the
Company or any other Person.
SECTION 6.2. Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.1(vi) or (vii) with respect to the Company) occurs and is continuing,
the Holders of at least 2501 in principal amount of the outstanding Securities
may, by written notice to the Company and the Trustee, and the Trustee upon the
written request of the Holders of not less than 25% in principal amount of the
outstanding Securities shall declare the principal of and accrued interest on
all the Securities to be due and payable immediately. Upon any such
declaration such amounts shall become due and payable immediately. If an Event
of Default specified in Section 6.1(a)(vi) or (vii) with respect to the Company
occurs and is continuing, then the principal of and accrued interest on all the
Securities shall ' ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder. The
Holders of a majority in aggregate principal amount of outstanding Securities
may, by written notice to the Trustee, rescind such declaration of acceleration
if: (a) all existing Events of Default have been cured or waived, other than
the non-payment of principal of and accrued interest on the Securities that has
become due solely as a result of such acceleration; (b) the rescission of
acceleration would not conflict with any judgment or decree; (c) the extent the
payment of such interest is lawful, interest on overdue installments of
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interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid; (d) the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for expenses,
disbursements and advances; and (e) in the event of the cure or waiver of an
Event of Default of the type described in (vi) or (vii) of Section 6.1, the
Trustee shall have received an Officers' Certificate and an opinion of Counsel
that such event has been cured or waived; provided, however, that such counsel
may rely, as to matter of fact, on a certificate or certificate of officers of
the Company. No such rescission shall affect any subsequent default or impair
any right consequent thereto.
SECTION 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities, this Indenture or the Security
Documents.
All rights of action and claims under this Indenture or the Securities
may be enforced by the Trustee even if the Trustee does not possess any of the
Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Each Holder, by accepting a Security, acknowledges that the exercise
of remedies by the Trustee with respect to the Collateral is subject to the
terms and conditions of the Security Documents and the proceeds received upon
realization of the Collateral shall be applied by the Trustee in accordance
with Section 6.10.
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SECTION 6.4. Waiver of Past Default.
Subject to Sections 6.7 and 9.2, the Holders of, in the aggregate, at
least a majority in principal amount of the outstanding Securities by written
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default specified in Section 6.1(a)(i) or (ii) or in
respect of any provision hereof which cannot be modified or amended without the
consent of the Holder so affected pursuant to Section 9.2. When a Default or
Event of Default is so waived, it shall be deemed cured and ceases.
SECTION 6.5. Control by majority.
The Holders of at least a majority in principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it; provided, however, that the Trustee may refuse to follow
any direction that (i) conflicts with law or this Indenture, (ii) the Trustee
determines may be unduly prejudicial to the rights of another Securityholder,
or (iii) may involve the Trustee in personal liability unless the Trustee has
indemnification satisfactory to it in its sole discretion against any loss or
expense caused by its following such direction; and provided, further, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction.
SECTION 6.6. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(b) the Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue a
remedy;
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(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 45 days after
receipt of the request and the offer and, if requested, provision of
indemnity; and
(e) during such 45-day period the Holders of a majority in principal
amount of the outstanding Securities do not give the Trustee a direction
inconsistent with the request.
The foregoing limitations shall not apply to a suit instituted by a
Holder for the enforcement of the payment of principal of or accrued interest
on such Security on or after the respective due dates set forth in such
Security.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, is
absolute and unconditional and shall not be impaired or affected without the
consent of such Holder except to the extent that the institution or prosecution
of such suit or the entry of judgment therein would, under applicable law,
result in the surrender, impairment or waiver of the Lien of this Indenture and
the Security Documents upon the Collateral.
SECTION 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(a)(i) or (ii) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against
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the Company or any other obligor on the Securities for the whole amount
of principal and accrued interest remaining unpaid, together with interest
overdue on principal and, to the extent that payment of such interest is
lawful, interest on overdue installments of interest, in each case at the
Interest Rate and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.9. Trustee May File Proofs of Claim.
The Trustee shall be entitled and empowered to file such proofs of
claim and other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Securityholders allowed in any judicial proceedings
relative to the Company, the Subsidiaries of the Company, its creditors or its
property and shall be entitled and empowered to collect and receive any monies
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any such judicial proceedings is hereby
authorized by each Securityholder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Securityholder in any such proceeding.
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SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article VI or
pursuant to any of the Security Documents, it shall pay out such money in the
following order:
First: to the Trustee for amounts due under Section 7.7 and for
amounts due under any of the Security Documents;
Second: to Holders for interest accrued on the Securities, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Securities for interest;
Third: to Holders for principal amounts owing under the Securities,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal; and
Fourth: to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to
this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys, fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by Holders of more than 10% in aggregate
principal amount of the outstanding Securities.
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ARTICLE VII
TRUSTEE
SECTION 7.1. Duties of Trustee.
(a) If an Event of Default known to the Trustee has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
as a prudent Person would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default actually
known to the Trustee:
(i) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no others and no implied covenants or
obligations shall be read into this Indenture against the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to the Trustee,
the Trustee shall examine such certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of this
Section 7.1.
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(ii) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.2, 6.4 or 6.5.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Except as otherwise provided for in Section 7.1(g) below, money held in trust
by the Trustee need not be segregated from other funds except to the extent
required by law.
(g) Notwithstanding anything herein to the contrary, all Net Cash
Proceeds delivered to the Trustee shall be invested on behalf of the Company in
one or more Permitted Investments pursuant to the written directions of the
Company delivered to the Trustee; Provided that the Trustee shall invest such
Net Cash Proceeds as provided in Section 11.8 hereof until it has received such
written directions. Such written directions shall specify the Permitted
Investment into which the Net Cash Proceeds shall be invested and the maturity
of such Permitted Investments, all subject to the requirements of this
Indenture.
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(h) The Trustee may refuse to perform any duty or exercise any right
or power unless it is provided adequate funds to enable it to do so and it
receives indemnity satisfactory to it in its sole discretion against any loss,
liability, fee or expense.
SECTION 7.2. Rights of Trustee.
Subject to Section 7.1:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee shall
not be bound to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by
agent or attorney.
(b) Before the Trustee acts or refrains from acting with respect to
any matter contemplated by this Indenture, it may require an Officers,
Certificate or an Opinion of Counsel, which shall conform to the
provisions of Section 13.5. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on such certificate or
opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent (other
than the negligence or willful misconduct of an agent who is an employee
of the Trustee) appointed with due care.
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(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice
or opinion of such counsel.
(f) Subject to Section 9.2 hereof, the Trustee may (but shall not be
obligated to), without the consent of the Holders, give any consent,
waiver or approval required under any of the Security Documents or by the
terms hereof with respect to the Collateral, but shall not without the
consent of the Holders of a majority in aggregate principal amount of the
Securities at the time outstanding (i) give any consent, waiver or
approval or (ii) agree to any amendment or modification of any of the
Security Documents, in each case which will have an adverse effect on the
interests of any Holder. The Trustee shall be entitled to request and
conclusively rely on an Opinion of Counsel with respect to whether any
consent, waiver, approval, amendment or modification will have an adverse
effect on the interests of any Holder.
(g) Subject to clause (a) of Section 7.1 hereof, the Trustee shall be
under no obligation to exercise any of the rights or powers vested in it
by this Indenture at the request or direction of any Holder pursuant to
this Indenture, unless such Holder shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction.
(h) The Trustee, in its individual or any other capacity, may make
loans to, accept deposits from, and perform services for the Company or
its Affiliates, and may
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otherwise deal with the Company or its Affiliates, as if it were not
Trustee.
SECTION 7.3. Individual Rights of Trustee.
The Trustee in its individual capacity or any other capacity may
become the owner or pledgee of Securities and may otherwise deal with the
Company or its respective Subsidiaries and Affiliates with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Securities or the Security
Documents or the Collateral covered thereby, or of any insurance thereon, and
it shall not be accountable for the Company's use of the proceeds from the
issuance of the Securities, and it shall not be responsible for any statement
of the Company in this Indenture, the Security Documents or any document issued
in connection with the sale of Securities or any statement in the Securities
other than the Trustee's certificate of authentication.
SECTION 7.5. Notice of Defaults.
If a Default or an Event of Default with respect to the Securities
occurs and is continuing and is known to the Trustee, the Trustee shall mail to
each Securityholder notice of the Default or Event of Default within 45 days
after the occurrence thereof. Except in the case of a Default or an Event of
Default in payment of principal of or interest on any Security, the Trustee may
withhold the notice to the Securityholders if a committee of its Trust Officers
in good faith determines that withholding the notice is in the interest of
Securityholders.
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SECTION 7.6. Reports by Trustee to Holders.
To the extent required by TIA Section 313(a), within 60 days after
May 1 of each year commencing with 1998 and for as long as there are Securities
outstanding hereunder, the Trustee shall mail to each Securityholder a brief
report dated as of such date that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Section 313(b) and TIA Section 313(c) and
(d). A copy of such report at the time of its mailing to Securityholders shall
be filed with the SEC, if required, and each stock exchange, if any, on which
the Securities are listed.
The Company shall promptly notify the Trustee if the Securities become
listed on any stock exchange, and the Trustee shall comply with TIA Section
313(d).
SECTION 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee, the Collateral Agent, the Paying
Agent and the Registrar from time to time reasonable compensation for their
respective services rendered hereunder or under the Security Documents. The
Trustee's, the Collateral Agent's, the Paying Agent's and the Registrar's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee, the Collateral Agent,
the Paying Agent and the Registrar upon request for all reasonable out-of-pocket
disbursements, expenses and advances (including fees and expenses of counsel)
incurred or made by each of them in addition to the compensation for their
respective services. Such expenses shall include the reasonable compensation,
out-of-pocket disbursements and expenses of the Trustee's, the Collateral
Agent's, the Paying Agent's and the Registrar's agents and counsel.
The Company shall indemnify the Trustee, the Collateral Agent, the
Paying Agent and the Registrar for, and hold each of them harmless against, any
claim, demand, expense (including but not limited to attorneys' fees and
expenses), loss or liability incurred by each of them arising out of or in
connection with the administration of this Indenture or the Secu-
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rity Documents and their respective duties hereunder or thereunder.
Each of the Trustee, the Collateral Agent, the Paying Agent and the Registrar
shall notify the Company promptly of any claim asserted against it for which it
may seek indemnity. However, failure by the Trustee, the Collateral Agent, the
Paying Agent or the Registrar to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company need not reimburse any
expense or indemnify against any loss or liability incurred by the Trustee, the
Collateral Agent, the Paying Agent or the Registrar through the Trustee's, the
Collateral Agent's, the Paying Agent's or the Registrar's, as the case may be,
own willful misconduct, gross negligence or bad faith.
To secure the Company's payment obligations in this Section 7.7, each
of the Trustee, the Collateral Agent, the Paying Agent and the Registrar shall
have a lien prior to the Securities on all money or property held or collected
by it, in its capacity as Trustee, the Collateral Agent, Paying Agent or
Registrar, as the case may be, except money or property held in trust to pay
principal of or interest on particular Securities. To the extent the same
entity serves in different capacities, it may assert the lien on its behalf in
relation to each of those capacities.
When any of the Trustee, the Collateral Agent, the Paying Agent and
the Registrar incurs expenses or renders services after an Event of Default
specified in Section 6.1(a)(vi) or (vii) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing, such resignation to be effective upon the appointment of a successor
Trustee. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee in writing and
may appoint a successor Trustee with the Company's consent,
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which consent shall not be unreasonably withheld. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
that, the retiring Trustee shall, at the expense of the Company, transfer all
property held by it as Trustee to the successor Trustee (subject to the lien
provided in Section 7.7), the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee
shall mail notice of its succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 25% in principal amount of the outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Any resignation or removal of the Trustee pursuant to this Indenture
shall be deemed to be a resignation or removal of the Trustee in its capacity
as collateral agent or mortgagee under each of the Security Documents and any
appointment of a successor Trustee pursuant to this Indenture shall be deemed
to be an appointment of a successor collateral agent or mortgagee under each of
the Security Documents and such successor shall assume all of the obligations
of the Trustee pursuant to the Security Documents.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association without any further act
shall be the successor Trustee (and successor collateral agent or mortgagee, as
applicable, under each of the Security Documents) provided such corporation
shall be otherwise qualified and eligible under this Article VII.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1) and (2). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities, or certificates of interest or
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participation in other securities, of the Company are outstanding if
the requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
The provisions of TIA Section 310 shall apply to the Company, as obligor of
the Securities.
SECTION 7.11. Preferential Collection of Claims Against Company.
Upon this Indenture being qualified under the TIA, the Trustee shall
comply with TIA Section 311(a), excluding any creditor relationship listed in
TIA Section 311(b). A Trustee who has resigned or been removed shall be
subject to TIA Section 311(a) to the extent indicated therein. The provisions
of TIA Section 311 shall apply to the Company, as obligor on the Securities.
SECTION 7.12. Co-Trustee.
(a) If at any time or times it shall be necessary or prudent in order
to conform to any law of any jurisdiction in which any of the Collateral shall
be located, or the Trustee shall be advised by counsel satisfactory to it, that
it is necessary or prudent in the interest of the Holders, or 25% of the
Holders of the outstanding Securities shall in writing so request the Trustee
and the Company, or the Trustee shall deem it desirable for its own protection
in the performance of its duties hereunder, the Trustee and the Company shall
execute and deliver all instruments and agreements necessary or proper to
constitute another bank or trust company, or one or more Persons approved by
the Trustee and the Company, either to act as co-trustee or co-trustees (each,
a "co-trustee") of all or any of the Collateral, jointly with the Trustee, or
to act as separate trustee or trustees of any such property. If the Company
shall not have joined in the execution of such instruments and agreements
within 10 days after it receives a written request from the Trustee to do so,
or if a notice of acceleration is in effect, the Trustee may act under the
foregoing provisions of this Section without the concurrence of the Company.
The Company hereby appoints the Trustee as its agent and attorney to act for it
under the foregoing provisions of this Section in either of such contingencies.
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(b) Every separate trustee and every co-trustee, other than any
successor Trustee appointed pursuant to Section 7.8, shall, to the extent
permitted by law, be appointed and act and be such, subject to the following
provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Trustee hereunder shall be conferred or imposed and exercised or
performed by the Trustee and such separate trustee or separate trustees or
co-trustee or co-trustees, jointly, as shall be provided in the instrument
appointing such separate trustee or separate trustees or co-trustee or
co-trustees, except to the extent that under any law of any jurisdiction
in which any particular act or acts are to be performed the Trustee shall
be incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such separate trustee or separate trustees or co-trustee or
co-trustees;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Company and the Trustee, at any time by an instrument in
writing executed by them jointly, may accept the resignation of or remove
any such separate trustee or co-trustee and, in that case by an instrument
in writing executed by them jointly, may appoint a successor to such
separate trustee or co-trustee, as the case may be, anything contained
herein to the contrary notwithstanding. If the Company shall not have
joined in the execution of any such instrument within 10 days after it
receives a written request from the Trustee to do so, or if a notice of
acceleration is in effect, the Trustee shall have the power to accept the
resignation of or remove any such separate trustee or co-trustee and to
appoint a successor without the concurrence of the Company, the Company
hereby appointing the Trustee its agent and attorney to act for it in such
connection in such contingency. If the Trustee shall have appointed a
separate trustee or separate trus-
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tees or co-trustee or co-trustees as above provided, the Trustee may at
any time, by an instrument in writing, accept the resignation of or remove
any such separate trustee or co-trustee and the successor to any such
separate trustee or co-trustee shall be appointed by the Company and the
Trustee, or by the trustee alone pursuant to this Section.
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Termination of Company's Obligations.
The Company may terminate its obligations under the Securities and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.1, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid) have been delivered to the Trustee for cancellation and the
Company has paid all sums payable by it hereunder, or if:
(a) pursuant to Article III, the Company shall have (i) given
notice to the Trustee of the redemption of all of the Securities and (ii)
either (x) mailed to Holders notice(s) of the redemption of all of the
Securities under arrangements satisfactory to the Trustee for the giving
of such notice(s) or (y) deposited with the Trustee such notice(s) of
redemption, together with irrevocable instructions to the Trustee to mail
such notice(s) to Holders in accordance with Section 3.3;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, money or direct
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non-callable obligations of, or non-callable obligations guaranteed by,
the United States of America for the payment of which guarantee or
obligation the full faith and credit of the United States of America is
pledged ("U.S. Government Obligations") maturing as to principal and
interest in such amounts and at such times as are sufficient without
consideration of any reinvestment of such interest, to pay principal of
and interest on the outstanding Securities to maturity or redemption, as
the case may be, provided that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to the payment of said principal and interest with respect to
the Securities; and
(c) the Company shall have delivered to the Trustee an Officers,
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's obligation under
the Securities and this Indenture have been complied with.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.5, 2.6, 2.7, 2.8, 4.1, 4.2, 7.7, 7.8, 8.4 and 8.5 shall survive
until the Securities are no longer outstanding. After the Securities are no
longer outstanding, the Company's obligations in Sections 7.7, 8.4 and 8.5
shall survive.
After such delivery or irrevocable deposit the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
SECTION 8.2. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either paragraph (b) or paragraph
(c) below be applied to the outstanding Securities upon compliance with the
conditions set forth in paragraph (d).
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(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "legal defeasance"). For this purpose, such legal defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of paragraph (e) below and
the other Sections of and matters under this Indenture referred to in (i) and
(ii) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of and interest on such Securities when such payments
are due, (ii) the Company's obligations with respect to such Securities under
Sections 2.6, 2.7 and 4.2, and, with respect to the Trustee, under Section 7.7,
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (iv) this Section 8.2. Subject to compliance with this Section
8.2, the Company may exercise its option under this paragraph (b)
notwithstanding the prior exercise of its option under paragraph (c) below with
respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article V and in Section
4.6 and Sections 4.9 through 4.23 with respect to the outstanding Securities on
and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed to be not
"outstanding" for the purpose of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection
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with such covenants, but shall continue to be deemed "outstanding" for
all other purposes hereunder. For this purpose, such covenant defeasance means
that, with respect to the outstanding Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or an
Event of Default under Section 6.1, but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Section 8.2 applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal of and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge and which shall be
applied by the Trustee (or other qualifying trustee) to pay and discharge
principal of and interest on the outstanding Securities on the Maturity
Date of such principal or installment of principal or interest in
accordance with the terms of this Indenture and of such Securities;
provided, however, that the Trus-
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tee (or other qualifying trustee) shall have received an irrevocable
written order from the Company instructing the Trustee (or other
qualifying trustee) to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities;
(ii) no Default or Event of Default or event which with notice or
lapse of time or both would become a Default or an Event of Default with
respect to the Securities shall have occurred and be continuing on the
date of such deposit (other than a Default or an Event of Default with
respect to the Indenture resulting from the Incurrence of Indebtedness,
all or a portion of which will be used to defease the notes concurrently
with such Incurrence) or, insofar as Sections 6.1(a)(vi) and (vii) are
concerned, at any time during the period ending on the 91st day after the
date of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period);
(iii) such legal defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a Default or Event of Default
under, this Indenture or any other agreement or instrument to which the
Company or any of its Restricted Subsidiaries is a party or by which the
Company or any of its Restricted Subsidiaries is bound;
(iv) in the case of an election under paragraph (b) above, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States of America, reasonably acceptable to the Trustee, stating that (x)
the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the date of this 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 shall
confirm that, the Holders of the outstanding Securities 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
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same manner and at the same times as would have been the case if such
legal defeasance had not occurred; provided, however, such opinion of
counsel shall not be required if the Securities will become due and
payable within one year of the Maturity Date or are to be called for
redemption within one year pursuant to arrangements which are satisfactory
to the Trustee;
(v) in the case of an election under paragraph (c) above, the Company
shall have delivered to the Trustee an opinion of Counsel in the United
States of America, reasonably acceptable to the Trustee, to the effect
that the Holders of the outstanding Securities 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;
(vi) in the case of an election under either paragraph (b) or (c)
above, an opinion of Counsel to the effect that, (x) the trust funds will
not be subject to any rights of any other holders of Indebtedness of the
Company other than the Securities, and (y) after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable Bankruptcy Law; provided, however, that if a court were to rule
under any such law in any case or proceeding that the trust funds remained
property of the Company, no opinion needs to be given as to the effect of
such laws on the trust funds except the following: (A) assuming such trust
funds remained in the Trustee's possession prior to such court ruling to
the extent not paid to Holders of Securities, the Trustee will hold, for
the benefit of the Holders of Securities, a valid and enforceable security
interest in such trust funds that is not avoidable in bankruptcy or
otherwise, subject only to principles of equitable subordination, (B) the
Holders of Securities will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used, and (C)
no property, rights
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in property or other interests granted to the Trustee or the Holders of
Securities in exchange for or with respect to any of such funds will be
subject to any prior rights of any other Person, subject only to prior
Liens granted under Section 364 of Title 11 of the U.S. Bankruptcy Code
(or any section of any other Bankruptcy Law having the same effect), but
still subject to the foregoing clause (B); and
(vii) the Company shall have delivered to the Trustee an officers,
Certificate and an Opinion of Counsel, each stating that (A) all
conditions precedent provided for relating to either the legal defeasance
under paragraph (b) above or the covenant defeasance under paragraph (c)
above, as the case may be, have been complied with and (B) if any other
Indebtedness of the Company shall then be outstanding or committed, such
legal defeasance or covenant defeasance will not violate the provisions of
the agreements or instruments evidencing such Indebtedness; provided,
however, that such counsel may rely as to matters of fact on a certificate
or certificates of officers of the Company;
(e) All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this paragraph (e), the "Trustee") pursuant to paragraph (d)
above in respect of the outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(other than the Company) as the Trustee may determine, to the Holders of such
Securities of all sums due and to become due thereon in respect of principal
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to paragraph (d) above or the principal and interest
received in respect thereof other than any such tax, fee or other charge
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which by law is for the account of the Holders of the outstanding
Securities.
Anything in this Section 8.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
SECTION 8.3. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government obligations
deposited with it pursuant to Sections 8.1 and 8.2, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of and interest on the
Securities.
SECTION 8.4. Repayment to Company.
Subject to Sections 7.7, 8.1 and 8.2, the Trustee shall promptly pay
to the Company, upon receipt by the Trustee of an Officers, Certificate, any
excess money, determined in accordance with Sections 8.2(d)(i) and (e), held by
it at any time. The Trustee and the Paying Agent shall pay to the Company,
upon receipt by the Trustee or the Paying Agent, as the case may be, of an
Officers, Certificate, any money held by it for the payment of principal or
interest that remains unclaimed for two years; provided, however, that the
Trustee and the Paying Agent before being required to make any payment may, but
need not, at the expense of the Company cause to be published once in a
newspaper of general circulation in The City of New York or mail to each Holder
at the address of such holder appearing in the Security Register entitled to
such money notice that such money remains unclaimed and that after a date
specified therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such
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money then remaining will be repaid to the Company. After payment to
the Company, Securityholders entitled to money must look solely to the Company
for payment as general creditors unless an applicable abandoned property law
designates another Person, and all liability of the Trustee or Paying Agent
with respect to such money shall thereupon cease.
SECTION 8.5. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Indenture by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
then and only then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had been made
pursuant to this Indenture until such time as the Trustee is permitted to apply
all such money or U.S. Government Obligations in accordance with this
Indenture; provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of
their obligations, the Company shall be subrogated to the rights of the holders
of such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Without Consent of Holders.
The Company, when authorized by a Board Resolution, and the Trustee
may amend, waive or supplement this Indenture, the Securities or any Security
Document without notice to or consent of any Securityholder:
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(a) to cure any ambiguity, defect or inconsistency, provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(c) to comply with any requirements of the SEC under the TIA;
(d) to evidence the succession in accordance with Article V hereof of
another Person to the Company and the assumption by any such successor of
the covenants of the Company herein and in the Securities;
(e) to mortgage, pledge or grant a security interest in favor of the
Trustee as additional security for the payment and performance of their
obligations under this Indenture, in any property or assets, including any
which are required to be mortgaged, pledged or hypothecated, or in which a
security interest is required to be granted, to the Trustee pursuant to
any Security Document or otherwise;
(f) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee with respect to the
Securities and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the
requirements of Section 7.12; or
(g) to make any change that does not adversely affect the rights of
any Holder.
SECTION 9.2. With Consent of Holders.
Subject to Section 6.7 and the provisions of this Section 9.2, the
Company and the Trustee may amend or supplement this Indenture, the
Securities or any of the Security Documents with the written consent of
the Holders of at least a
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majority in aggregate principal amount of the Securities then
outstanding. Subject to Section 6.7 and the provisions of this Section
9.2, the Holders of, in the aggregate, at least a majority in aggregate
principal amount of the outstanding Securities affected may waive
compliance by the Company with any provision of this Indenture or the
Securities without notice to any other Securityholder. However, without
the consent of each Securityholder affected, an amendment, supplement or
waiver, including a waiver pursuant to Section 6.4, may not:
(a) reduce the amount of Securities the Holders of which must consent
to an amendment, supplement or waiver of any provision of this Indenture,
the Securities or the Security Documents;
(b) reduce the rate of, change the method of calculation of, or
extend the time for, payment of interest including defaulted interest on
any Security;
(c) reduce the principal of or change the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption
or repurchase, or reduce the redemption or repurchase price therefor;
(d) make any Notes payable in money other than that stated in the
Notes;
(e) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
the Notes to waive Defaults or Events of Default;
(f) amend, modify or change the obligation of the Company to make or
consummate a Change of Control Offer (including the definition of Change
of Control), or, after the Company's obligation to purchase the Notes
arises thereunder, an Asset Sale Offer or waive any default in the
performance thereof or modify any of the provisions or definitions with
respect to any Asset Sale Offer;
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(g) adversely affect the ranking of Notes; or
(h) adversely affect the Liens on any material portion of the
Collateral.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.3. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture, the Security
Documents or the Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of
that Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security. Such revocation shall be
effective only if the Trustee receives the notice of revocation before the date
the amendment, supplement or waiver becomes effective. Notwithstanding the
above, nothing in this paragraph shall impair the right of any Securityholder
under TIA Section 316(b).
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled
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to consent to any amendment, supplement or waiver. If a record date is
fixed, then notwithstanding the second and third sentences of the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
consent to such amendment, supplement or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. Such consent shall be effective only for actions taken within 90
days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(a) through (i) of Section 9.2; if it makes such a change, the amendment,
supplement or waiver shall bind every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security.
SECTION 9.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee shall (in accordance with the specific direction of the Company)
request the Holder of the Security to deliver it to the Trustee. The Trustee
shall (in accordance with the specific direction of the Company) place an
appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or issue a new Security shall not affect the validity
and effect of such amendment, supplement or waiver.
SECTION 9.6. Trustee To Sign Amendments, Etc.
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article IX if the amendment, supplement or waiver does not
adversely affect the rights, duties or immunities of the Trustee. If it does,
the Trustee
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may, but need not, sign it. In signing any amendment, supplement or
waiver, the Trustee shall be entitled to receive, if requested, an indemnity
satisfactory to it in its sole discretion and to receive, and shall be fully
protected in relying upon, an opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture. The Company may not sign an
amendment until its Board of Directors approves it.
ARTICLE X
SECURITY DOCUMENTS
SECTION 10.1. Collateral and Security Documents.
(a) In order to secure the due and punctual payment of principal of
and interest on the Securities when and as the same shall become due and
payable, whether on an Interest Payment Date, at maturity, by acceleration,
repurchase or otherwise, and interest on the overdue principal of and interest
(to the extent permitted by law), if any, on the Securities and performance of
all other obligations of the Company to the Collateral Agent, the Holders or
the Trustee under this Indenture, the Company and the Collateral Agent for the
benefit of the Trustee and the Holders have simultaneously with the execution
of this Indenture entered into the Security Documents, pursuant to which the
Company has granted to the Collateral Agent for the benefit of the Trustee and
the Holders a first priority Lien on and security interest in the Collateral.
The Collateral Agent and the Company hereby agree that the Collateral Agent
holds the Collateral as a secured party or mortgagee, as the case may be, in
trust for the benefit of the Trustee, in its capacity as Trustee, and for the
benefit of the Holders pursuant to the terms of the Security Documents.
(b) Each Holder, by accepting a Security, agrees to all of the terms
and provisions of the Security Documents, the Indenture, the Intercreditor
Agreement (including, without
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limitation, Section 2.1 of the Intercreditor Agreement) and the
Subordination Agreement, as any of the same may be amended or replaced from
time to time pursuant to the provisions of the Security Documents, the
Intercreditor Agreement and this Indenture and authorizes and directs the
Trustee in its capacity as Collateral Agent to act as mortgagee or secured
party with respect thereto.
(c) The Trustee shall (i) in its capacity as Trustee and Collateral
Agent execute that certain Environmental Indeminity agreement (the form of
which is attached hereto as Exhibit Q), dated as of the dte hereof, between
Trustee and the Company (ii) in its capacity as Collateral Agent and Trustee
execute the Intercreditor Agreement.
(d) Pursuant to the terms and provisions of this Indenture, Trustee
has been authorized and directed to serve in the capacity of both Trustee and
Collateral Agent. Notwithstanding the foregoing, Collateral Agent shall be
entitled to, inter alia, the same rights and protections and limitations on
liability as accorded the Trustee pursuant to Section 7.1 and 7.2 of this
Indenture.
(e) Whenever in this Indenture, the Security Documents or the
Intercreditor Agreement the Trustee or Collateral Agent may consent to actions
or exceptions, the Trustee or Collateral Agent may condition any such consent
upon receipt of written consent and direction from a majority or more of the
Holders.
SECTION 10.2. Recording; Priority; Options, Etc.
(a) The Company shall at its sole cost and expense, and shall cause
any of its Subsidiaries to, perform any and all acts and execute any and all
documents (including, without limitation, the execution, amendment or
supplementation of any financing statement and continuation statement or other
statement) for filing under the provisions of the UCC and the rules and
regulations thereunder, or any other statute, rule or regulation of any
applicable federal, state or local jurisdiction, including, without limitation,
any filings in local real estate
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land record offices, which are necessary or advisable and shall do or
cause to be done, as the case may be, such other acts and execute such other
documents as may be required under of the Security Documents, from time to
time, in order to grant, perfect and maintain in favor of the Collateral Agent
for the benefit of the Trustee and the Holders a valid and perfected first
priority Lien on the Collateral, subject only to Prior Liens and to fully
preserve and protect the rights of the Trustee and the Holders under this
Indenture.
The Company shall from time to time promptly pay and satisfy all
mortgage and financing and continuation statement recording and/or filing fees,
charges and taxes relating to this Indenture and the Security Documents, any
amendments thereto and any other instruments of further assurance. Without
limiting the generality of the foregoing covenant, in the event at any time the
Collateral Agent or the Trustee shall determine that additional mortgage
recording, transfer or similar taxes are required to be paid to perfect or
continue any Lien on any Collateral, the Company shall pay such taxes promptly
upon demand by the Collateral Agent or the Trustee. Notwithstanding the
foregoing, neither the Collateral Agent nor the Trustee shall have any duty or
obligation to ascertain whether any such taxes are required to be paid at any
time, and the determination referred to in the preceding sentence shall only be
made by the Collateral Agent or the Trustee upon receipt of written notice that
such taxes are due and owing.
(b) The Company shall furnish to the Trustee:
(i) at the time of execution and delivery of this Indenture,
Opinion(s) of Counsel either substantially to the effect that, in the
Opinion of such Counsel, including, without limitation, financing
statements, the Security Documents create a valid Lien on the Collateral
as security for payment of the Secured Obligations (as defined in the
Security Agreement) in all of the Company's right, title and interest in
and to all personal property included within the definition of the term
Pledged Collateral (as defined in the Security Agreement) in which a
security interest can be granted under the uniform commer-
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cial code in the states of Illinois, New York and California (the
"Applicable Uniform Commercial Code") (the "Code Collateral") and that
such counsel has examined the financing statement (the "Financing
Statements") to be filed in the filing offices (the "Filing Offices") with
respect to the Lien granted to the Trustee pursuant to the Security
Agreement, and upon the filing of such Financing Statements in the Filing
Offices, and assuming that the representations made in the Security
Documents with respect to the location of the Code Collateral and the
chief executive office of the Company are and remain true and correct: (a)
all filings, registrations and recordings necessary to perfect the Lien on
the Collateral granted to the Trustee under such Security Documents in
respect of all Code Collateral in which a Lien on the Collateral may be
perfected by filing a financing statement in the Filing Offices will have
been accomplished; and (b) the Lien on the Collateral granted to the
Trustee pursuant to such Security Documents in and to such Code Collateral
will be perfected to the extent that such security interests may be
perfected by filing financing statements in the Filing Offices under the
Applicable Uniform Commercial Code;
(ii) at the time of execution and delivery of this Indenture, with
respect to each Mortgage, a policy of title insurance (or a commitment to
issue such a policy) which may be issued pursuant to an endorsement to any
existing policy or commitment insuring (or committing to insure) the Lien
of such Mortgage as a valid first mortgage Lien on the Real Property and
fixtures described therein, subordinate only to those Liens specified in
the Mortgage as "Permitted Liens," in an amount not less than the Fair
Market Value of such Real Property and fixtures, which policy (or
commitment) shall (a) be issued by Chicago Title Insurance Company, (b)
have been supplemented by the following endorsements, to the extent
available at commercially reasonable rates: contiguity, first loss, last
dollar, usury, doing business and so-called comprehensive coverage over
covenants and restrictions and (c) contain
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only such exceptions to title as shall be Prior Liens (as defined in
the Mortgages);
(iii) within 30 days after January 1 in each year beginning with
January 1, 1998, an Opinion of Counsel, dated as of such date, either (a)
to the effect that, in the opinion of such counsel, such action has been
taken with respect to the recordings, registerings, filings, rerecordings,
re-registerings and refilings of all financing statements, continuation
statements or other instruments of further assurance as is necessary to
maintain the Liens of each of the Security Documents and reciting with
respect to such Liens the details of such action or referencing to prior
Opinions of Counsel in which such details are given, and stating that all
financing statements and continuation statements have been executed and
filed that are necessary fully to preserve and protect the rights of the
Holders and the Trustee hereunder and under each of the Security Documents
with respect to the Liens, or (b) to the effect that, in the opinion of
such Counsel, no such action is necessary to maintain such Liens;
(iv) within 90 days after the Issue Date, with respect to each Real
Property located in California, a survey certified to the Collateral Agent
and the Trustee and the title insurance company issuing the title
commitments referred to in clause (ii) above in such form as shall be
required by the title insurance company to issue a comprehensive
endorsement in customary form; and
(v) at least annually a Certificate of Insurance detailing the
coverages) for each mortgaged property secured by this Indenture and the
Security Documents.
SECTION 10.3. Disposition of Collateral Without Release.
(a) Notwithstanding the provisions of Section 10.4, so long as no
Event of Default shall have occurred and be continuing, the Company (and any
Restricted Subsidiaries, with respect to any Collateral pledged by Restricted
Subsidiaries),
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may, without any release or consent by the Collateral Agent or the
Trustee:
(i) sell or otherwise dispose of any machinery, equipment, furniture,
apparatus, tools or implements, materials or supplies or other similar
property subject to the Lien of the Security Documents, which may have
become worn out or obsolete, not exceeding in value in any one calendar
year the lesser of $25,000 or one percent of the principal amount of the
Securities at the time outstanding;
(ii) grant rights-of-way and easements over or in respect of any Real
Property; provided, however, that such grant will not, in the reasonable
opinion of the Board of Directors of the Company, impair the usefulness of
such property in the conduct of the Company's business, as applicable, and
will not materially adversely affect the interests of the Holders;
(iii) alter, repair, replace, change the location or position of and
add to its plants, structures, machinery, systems, equipment, fixtures and
appurtenances; provided, however, that no change in the location of any
such Collateral subject to the Lien of any of the Security Documents shall
be made which (1) removes such property into a jurisdiction in which any
instrument required by law to preserve the Lien of any of the Security
Documents on such property, including all necessary financing statements
and continuation statements, has not been recorded, registered or filed in
the manner required by law to preserve the Lien of any of the Security
Documents on such property, (2) does not comply with the terms of this
Indenture and the Security Documents or (3) otherwise impairs the Lien of
the Security Documents;
(iv) demolish, dismantle, tear down or scrap any Collateral, or
abandon any thereof other than land or interests in land (other than
leases), if in the good faith opinion of the Board of Directors of the
Company (as evidenced by a Board Resolution if it involves Collateral
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having a Fair Market Value in excess of the lesser of $100,000 or 1%
of the aggregate principal amount of the outstanding Securities), such
demolition, dismantling, tearing down, scrapping or abandonment is in the
best interests of the Company, and the Fair Market Value and utility of
the Collateral as an entirety, and the security for the Securities, will
not thereby be impaired;
(v) grant a non-exclusive license of any Patent, Trademark or
Copyright (each as defined in the relevant Security Document);
(vi) abandon any Patent, Trademark or Copyright where subsequent
applications relating to such Patent, Trademark or Copyright have been
filed with respect to similar subject matter or where the Company, in its
reasonable business judgment, concludes that such abandonment is in the
best interest of the Company;
(vii) grant leases in respect of any Real Property in the event that
the Company determines that such Real Property is no longer useful in the
conduct of the Company's business; provided, however, that any such lease
shall by its terms be subject and subordinate to the Lien of the Mortgage
affecting such Real Property;
(viii) abandon, terminate, cancel, release or make alterations in or
substitutions of any leases, contracts or rights-of-way subject to the
Lien of the Security Documents; provided, however, that any altered or
substituted leases, contracts or rights-of-way shall forthwith be made
subject to the Lien of the Security Documents to the same extent as those
previously existing; and provided, further, that if the Company shall
receive any money or property in excess of its expenses in connection with
such termination, cancellation, release, alteration or substitution, to
the extent it exceeds $250,000 (in which case all of the money so received
and not just the portion in excess of $250,000 shall be subject to this
clause), forthwith upon its receipt by the Company, shall be deposited
with the Trustee (unless otherwise required by a
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Prior Lien permitted under the applicable Security Documents) as Trust
Moneys subject to disposition as provided in Article Twelve hereof or
otherwise subjected to the Lien of the Security Documents; or
(ix) surrender or modify any franchise, license or permit subject to
the Lien of any of the Security Documents which it may own or under which
it may be operating; provided, however, that after the surrender or
modification of any such franchise, license or permit, the Company shall
still, in the reasonable opinion of the Board of Directors of the Company,
be entitled, under some other or without any franchise, license or permit,
to conduct its business in the territory in which it is then operating;
and provided, further, that if the Company shall be entitled to receive
any money or property in excess of its expenses in connection with such
surrender or modification, to the extent it exceeds $250,000 (in which
case all of the money so received and not just the portion in excess of
$250,000 shall be subject to this clause), forthwith upon its receipt by
the Company, shall be deposited with the Trustee (unless otherwise
required by a Prior Lien permitted under the applicable Security
Documents) as Trust Moneys subject to disposition as provided in Article
Twelve hereof or otherwise subjected to the Lien of the Security
Documents.
(b) In the event that the Company has sold, exchanged, or otherwise
disposed of or proposes to sell, exchange or otherwise dispose of any portion
of the Collateral which under the provisions of this Section 10.3 may be sold,
exchanged or otherwise disposed of by the Company without any release or
consent of the Trustee, and the Company requests the Trustee or the Collateral
Agent to furnish a written disclaimer, release or quitclaim of any interest in
such property under any of the Security Documents, the Trustee and/or the
Collateral Agent shall promptly execute such an instrument upon delivery to the
Trustee of (i) an Officers, Certificate by the Company reciting the sale,
exchange or other disposition made or proposed to be made and describing in
reasonable detail the property affected
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thereby, and stating that such property is property which by the
provisions of this Section 10.3 may be sold, exchanged or otherwise disposed of
or dealt with by the Company without any release or consent of the Trustee and
(ii) an Opinion of Counsel stating that the sale, exchange or other disposition
made or proposed to be made was duly taken by the Company in conformity with a
designated subsection of Section 10.3(a) and that the execution of such written
disclaimer, release or quitclaim is appropriate under this Section 10.3.
Any disposition of Collateral made in strict compliance with the
provisions of this Section 10.3 shall be deemed not to impair the Lien of the
Security Documents in contravention of the provisions of this Indenture.
SECTION 10.4. Release of Collateral.
In addition to its rights under Sections 10.3 and 10.5, the Company
(and any Restricted Subsidiary with respect to any Collateral pledged by such
Restricted Subsidiary) shall have the right, at any time and from time to time,
to sell, exchange or otherwise dispose of any of the Collateral (other than
Trust Moneys (but other than Trust Moneys constituting Collateral Proceeds),
which are subject to release from the Lien of the Security Documents as
provided under Article XI), upon compliance with the requirements and
conditions of this Section 10.4, and the Trustee shall promptly release the
same from the Lien of any of the Security Documents upon receipt by the Trustee
(other than in the case of Section 10.4(d)) of a Release Notice (as hereinafter
defined) requesting such release and describing the property to be so released,
together with delivery of the following, among other matters:
(a) If the property to be released has a book value of at least
$5,000,000, a Board Resolution of the Company requesting such release and
authorizing an application to the Trustee therefor.
(b) An Officers, Certificate of the Company, dated not more than 30
days prior to the date of the application for such release, and signed
also, in the case of the fol-
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lowing clauses (ii) and (iv) by an Appraiser or, if such property
consists of securities, by a Financial Advisor, in each case stating in
substance as to certain matters, including the following:
(i) that, in the opinion of the signers, the security afforded
by the Security Documents will not be impaired by such release in
contravention of the provisions of this Indenture, and that either (1)
the Collateral to be released is not Collateral Proceeds and is not
being replaced by comparable property, has a net book value of less
than $750,000, and is not necessary for the efficient operation of the
Company's and its Subsidiaries, remaining property or in the conduct
of the business of the Company and its Subsidiaries as conducted
immediately prior thereto, (2) the Collateral to be released is Trust
Moneys representing Collateral Proceeds that are not required or
cannot possibly be required through the passage of time or otherwise,
to be used to purchase the Securities pursuant to Section 4.14; or (3)
the Collateral to be released is being released in connection with an
Asset Sale of such Collateral and the net proceeds (as defined in
Section 10.4(d)) from such Asset Sale are being delivered to the
Trustee (if required by Section 4.14) in accordance with, and to the
extent required by, the provisions of Section 10.4(d);
(ii) that, except in the case of a release referred to in
10.4(b)(i)(2), that the Company has either disposed of or will dispose
of the Collateral so to be released in compliance with all applicable
terms of this Indenture and for a consideration representing, in the
opinion of the signers, its fair value, which consideration may,
subject to any other provision of this Indenture, consist of any one
or more of the following: (A) cash or Cash Equivalents, (B)
obligations secured by a purchase money Lien upon the property so to
be released and (C) any other
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property or assets that, in each case, upon acquisition thereof
by the Company, would be subject to the Lien of the Security
Documents (except as provided in Section 10.4(d)) and subject to no
Lien other than certain Liens which, under the applicable provisions
of the Security Documents relating thereto, are permitted to be
superior to the Lien of the Trustee therein for the benefit of the
Holders herein and therein, all of such consideration to be briefly
described in the certificate;
(iii) that no Event of Default has occurred and is continuing;
(iv) the Fair Value, in the opinion of the signers, of the
property to be released at the date of such application for release;
provided, however, that it shall not be necessary under this clause
(iv) to state the Fair Value of any property whose fair value is
certified in a certificate of an Independent Appraiser or Independent
Financial Advisor under Section 10.4(c); and
(v) that all conditions precedent herein provided for relating
to the release of the Collateral in question have been complied with.
(c) If (i) the fair value of the property to be released and of all
other property released from the Lien of the Security Documents since the
commencement of the then current calendar year, as shown by certificates
required by Section 10.4(b), is 100i or more of the aggregate principal
amount of the Securities outstanding on the date of the application, and
(ii) the Fair Value of the Collateral to be so released, as shown by the
certificate filed pursuant to paragraph (b) of this Section 10.4, is at
least $250,000 and at least l. of the aggregate principal amount of the
Securities outstanding on the date of the application, a certificate of an
Independent Appraiser, or if such property consists of securities, a
certificate of an Independent Financial Advisor, stating:
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(1) the then fair value, in the opinion of the signer, of the
property to be released; and
(2) that such release, in the opinion of the signer, will not
impair the Lien of any of the Security Documents in contravention of
its terms.
(d) The net proceeds (excluding any Collateral Proceeds from any
Asset Sale which are not required, or cannot possibly be required, through
the passage of time or otherwise, to be used to purchase or redeem
Securities under Section 4.14) or, if the Collateral so to be released is
subject to a Prior Lien, a certificate of the trustee, mortgagee or other
holder of such prior Lien permitted by the Security Documents that it has
received such net proceeds (except to the extent that the assignment
thereof would violate the terms thereof or any agreement relating thereto)
and has been irrevocably authorized by the Company to pay over to the
Trustee any balance of such net proceeds remaining after the discharge of
such Indebtedness secured by such Prior Lien permitted by the Security
Documents; and, if any property other than cash, Cash Equivalents or
obligations is included in such net proceeds, such instruments of
conveyance, assignment and transfer, if any, as may be necessary, in the
opinion of Counsel to be given pursuant to Section 10.4(e), to subject to
the Lien of the Security Documents all the right, title and interest of
the Company in and to such property.
For the purposes of this Section 10.4(d), "net proceeds" means any
cash, Cash Equivalents, obligations or other property received on the
sale, transfer, exchange or other disposition of Collateral to be
released, less a proportionate share of (i) brokerage commissions and
other reasonable fees and expenses related to such transaction and (ii)
any provision for any Federal, state or local taxes payable as a result of
such sale, transfer, exchange or other disposition.
(e) One or more Opinions of Counsel which, when considered
collectively, shall be substantially to the effect
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(i) that any obligation included in the consideration for any
property so to be released and to be received by the Trustee pursuant to
Section 10.4(d) is a valid and binding obligation enforceable in
accordance with its terms, subject to such customary exceptions regarding
equitable principles, creditors, rights generally and bankruptcy as shall
be reasonably acceptable to the Trustee in its sole judgment, and is
effectively pledged under the Security Documents, (ii) that any Lien
granted by a purchaser to secure a purchase money obligation is a fully
perfected first priority Lien to the extent obtainable by filing or
possession and such instrument granting such Lien is enforceable in
accordance with its terms, (iii) either (x) that such instruments of
conveyance, assignment and transfer as have been or are then delivered to
the Trustee are sufficient to subject to the Lien of the applicable
Security Documents all the right, title and interest of the Company in and
to any property, other than cash, Cash Equivalents and obligations, that
is included in the consideration for the Collateral so to be released and
is to be received by the Trustee pursuant to Section 10.4(d), subject to
no Lien other than Liens of the type permitted by the applicable Security
Documents, or (y) that no instruments of conveyance, assignment or
transfer are necessary for such purpose, (iv) that the Company has
corporate power to own all property included in the consideration for such
release, (v) in case any part of the money or obligations referred to in
Section 10.4(d) has been deposited with a trustee or holder of a Prior
Lien that the Collateral to be released, or a specified portion thereof,
is or immediately before such release was subject to such Prior Lien
permitted by the Security Documents and that such deposit is required by
such Prior Lien permitted by the Security Documents and (vi) that all
conditions precedent herein and under any of the Security Documents
relating to the release of such Collateral have been complied with.
(f) If the Collateral to be released is only a portion of a discrete
parcel of Real Property, evidence that
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a title insurance company shall have committed to issue an
endorsement to the title insurance policy relating to the affected
Mortgaged Property confirming that after such release, the Lien of
the applicable Mortgage continues unimpaired as a first priority
perfected Lien upon the remaining Mortgaged Property subject only to
those Liens permitted by the applicable Mortgage.
(g) If the Collateral to be released is Mortgaged Property
having a fair value in excess of $250,000, the Company shall have
delivered to the Trustee a Survey depicting the Real Property to be
released.
In connection with any release, the Company shall (i) execute,
deliver and record or file and obtain such instruments as the Trustee may
reasonably require, including, without limitation, amendments to the Security
Documents and (ii) deliver to the Trustee such evidence of the satisfaction of
the applicable provisions of this Indenture and the Security Documents as the
Trustee may reasonably require.
The Company shall exercise their rights under this Section 10.4
by delivery to the Trustee of a notice (each, a "Release Notice"), which shall
(i) refer to this Section 10.4, (ii) contain all the resolutions, certificates,
opinions, title insurance endorsements, Surveys and such other documents and
statements as are required pursuant to this Section 10.4 (including, without
limitation, the Officers, Certificate required pursuant to Section 10.4(b)),
(iii) describe with particularity the items of property proposed to be covered
by the release and (iv) be accompanied by a counterpart of the instruments
proposed to give effect to the release fully executed and acknowledged (if
applicable) by all parties thereto other than the Trustee and in form for
execution by the Trustee. Upon such compliance, the Company shall direct the
Trustee to execute, acknowledge (if applicable) and deliver to the Company such
counterpart within 10 Business Days after receipt by the Trustee of a Release
Notice and the satisfaction of the requirements of this Section 10.4.
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Notwithstanding the foregoing provisions of this Section 10.4, the
Company may obtain a release of Available Proceeds Amounts required to purchase
Securities pursuant to an Asset Sale Offer on an Asset Sale Payment Date by
directing the Trustee in writing to cause to be applied such Available Proceeds
Amounts to such purchase in accordance with Section 4.14 and Article XI.
In case an Event of Default shall have occurred and be continuing,
the Company, while in possession of the Collateral (other than cash, Cash
Equivalents, securities and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder or under any Security Document
or with the trustee, mortgagee or holder of a Prior Lien permitted by the
Security Documents), may do any of the things enumerated in this Section 10.4
only if the Holders of a majority in aggregate principal amount of the
Securities outstanding, by appropriate action of such Holders, shall consent to
such action, in which event any certificate filed under this Section 10.4 shall
omit the statement to the effect that no Event of Default has occurred and is
continuing. This paragraph shall not apply, however, during the continuance of
an Event of Default of the type specified in Section 6.1(a)(i) or (ii).
All cash or Cash Equivalents received by the Trustee pursuant to this
Section 10.4 shall be held by the Trustee for the benefit of the Holders, as
Trust Moneys subject to application as provided in this Section 10.4 (in the
case of any Net Cash Proceeds from Asset Sales) or in Article XI. All purchase
money and other obligations received by the Trustee pursuant to this Section
10.4 shall be held by the Trustee for the benefit of the Holders, as
Collateral.
Any releases of Collateral made in strict compliance with the
provisions of this Section 10.4 shall be deemed not to impair the security
interests created by the Security Documents in favor of the Trustee, for the
benefit of the holders, in contravention of the provisions of this Indenture.
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SECTION 10.5. Substitute Collateral.
The Company may, at its option, obtain a release of any of the
Collateral constituting Equipment by subjecting other Equipment used or to be
used in the business of the Company to the Lien of any Security Document or a
similar instrument in place of and in exchange for any of the Collateral to be
released, if such substitute Equipment has a fair value equal to or greater
than the Collateral to be released ("Substitute Collateral"), upon presentation
to the Trustee of the following documents:
(a) an application of the Company requesting such substitution of
Substitute Collateral and describing the property to be so released and the
property to be substituted therefor;
(b) the resolutions, certificates, opinions and other statements
required by the provisions of Section 10.4 (other than Section 10.4(b)(1)), as
applicable, in respect of any of the Collateral to be released;
(c) an Officers' Certificate, also signed by an Independent
Appraiser, stating in substance the Fair Market Value, in the opinion of the
signers, of the Substitute Collateral and the Collateral to be released;
(d) an instrument or instruments in recordable form sufficient for
the Lien of the Security Documents to cover the Substitute Collateral;
(e) an Opinion of Counsel stating that the Lien of the Security
Documents constitutes a valid and perfected Lien on such Substitute Collateral
and an opinion of Counsel in the jurisdiction in which the Substitute
Collateral is located substantially in the form of the local counsel opinions
delivered on the Closing Date and otherwise in form and substance satisfactory
to the Trustee with respect to the documents executed and delivered by the
Company and the Substitute Collateral encumbered thereby;
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(f) an Officers' Certificate of the Company stating that (i) any
specific exceptions to such Lien are Liens of the character which were
permitted to be Prior Liens under the Security Documents with respect to the
Collateral being replaced by such Substitute Collateral and (ii) the Fair
Market Value of all Collateral released pursuant to this Section 10.5 during
the then current calendar year does not exceed in the aggregate $10,000,000;
and
(g) evidence of payment or a closing statement indicating payments to
be made by the Company of all filing fees, recording charges, transfer taxes
and other costs and expenses, including reasonable legal fees and disbursements
of counsel for the Trustee (and any local counsel) that may be incurred to
validly and effectively subject such Substitute Collateral to the Lien of any
applicable Security Document and to perfect such Liens.
SECTION 10.6. Eminent Domain and Other Governmental Takings.
Subject to the provisions of the Security Documents, upon the
occurrence of a Taking, or should any of the Collateral be sold pursuant to the
exercise by the United States of America or any state, municipality or other
governmental authority of any right which it may then have to purchase, or to
designate a purchaser or to order a sale of, all or any part of the Collateral,
the Trustee shall release the property subject to such taking or purchase, but
only upon receipt by the Trustee of the following:
(a) an officers, Certificate stating that a Taking has occurred with
respect to such property and the amount of the award therefor, or that
such property has been sold pursuant to a right vested in the United
States of America, or a state, municipality or other governmental
authority to purchase, or to designate a purchaser, or order a sale of
such property and the amount of the proceeds of such sale, and that all
conditions precedent herein provided for relating to such release have
been complied with;
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(b) any Net Award, to be held as Trust Moneys subject to the
disposition thereof pursuant to Article XI and the applicable Security
Documents; provided, however, that, in lieu of all or any part of such Net
Award, the Company shall have the right to deliver to the Trustee a
certificate of the trustee, mortgagee or other holder of a Prior Lien on
all or any part of the property to be released, stating that such Net
Award, or a specified portion thereof, has been deposited with such
trustee, mortgagee or other holder pursuant to the requirements of such
Prior Lien, in which case the balance of the award, if any, shall be
delivered to the Collateral Agent; and
(c) an opinion of Counsel substantially to the effect:
(1) that a Taking has occurred with respect to such property or
such property has been sold pursuant to the exercise of a right
vested in the United States of America or a state, municipality or
other governmental authority to purchase, or to designate a purchaser
or order a sale of, such property;
(2) in the case of any Taking, that the Net Award for the
property so taken has become final or that the Board of Directors of
the Company has determined that an appeal from such award is not
advisable in the interests of the Company or the Holders of the
Securities;
(3) in the case of any such sale, that the amount of the
proceeds of the property so sold is not less than the amount to which
the Company is legally entitled under the terms of such right to
purchase or designate a purchaser, or under the order or orders
directing such sale, as the case may be;
(4) in case, pursuant to Section 10.6(b), the Net Award for
such property or the proceeds of such sale, or a specified portion
thereof, shall be certified to have been deposited with the trustee,
mortga-
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gee or holder of a Prior Lien, that the property to be
released, or a specified portion thereof, is or immediately before
such Taking or purchase was subject to such Prior Lien, and that such
deposit is required by such Prior Lien; and
(5) that the instrument or the instruments and the Net Award or
proceeds of such sale which have been or are therewith delivered to
and deposited with the Trustee conform to the requirements of this
Indenture and any of the applicable Security Documents and that, upon
the basis of such application, the Trustee is permitted by the terms
hereof and of the Security Documents to execute and deliver the
release requested, and that all conditions precedent herein provided
for relating to such release have been complied with.
In any proceedings for the Taking or purchase or sale of any part of
the Collateral, by eminent domain or by virtue of any such right to purchase or
designate a purchaser or to order a sale, the Trustee may be represented by
counsel who may be counsel for the Company.
All cash or Cash Equivalents received by the Trustee pursuant to this
Section 10.6 shall be held by the Trustee as Trust Moneys under Article XI
subject to application as therein provided. All purchase money and other
obligations received by the Trustee pursuant to this Section 10.6 shall be held
by the Trustee as Collateral subject to application as provided in Section
10.11.
SECTION 10.7. Trust Indenture Act Requirements.
The release of any Collateral, whether pursuant to Article X or XI,
from the Lien of any of the Security Documents or the release of, in whole or
in part, the Liens created by any of the Security Documents, will not be deemed
to impair the Lien of the Security Documents in contravention of the provisions
hereof if and to the extent the Collateral or Liens are released pursuant to
the applicable Security Documents and pur-
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suant to the terms hereof. The Trustee and each of the Holders acknowledge
that a release of Collateral or Liens strictly in accordance with the terms
of the Security Documents and the terms hereof will not be deemed for any
purpose to be an impairment of the Liens created pursuant to the Security
Documents in contravention of the terms of this Indenture. To the extent
applicable, without limitation, the Company shall cause Trust Indenture Act
Section 314(d) relating to the release of property or securities from the
Liens hereof and of the Security Documents to be complied with. Any
certificate or opinion required by Trust Indenture Act Section 314(d) may be
made by an officer of the Company, except in cases in which Trust Indenture Act
Section 314(d) requires that such certificate of opinion be made by an
independent person.
SECTION 10.8. Suits To Protect the Collateral.
Subject to the provisions of the Security Documents, the Trustee shall
have power to institute and to maintain such suits and proceedings as it may
deem expedient to prevent any impairment of the Collateral by any acts which
may be unlawful or in violation of any of the Security Documents or this
Indenture, and such suits and proceedings as the Trustee may deem expedient to
preserve or protect its interests and the interests of the Holders in the
Collateral (including, without limitation, power to institute and maintain
suits or proceedings to restrain the enforcement of or compliance with any
legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance
with, such enactment, rule or order would impair the Collateral or the Lien of
the Security Documents or be prejudicial to the interests of the Holders or the
Trustee). The Company shall be liable for the costs and expenses of the
Trustee including fees and expenses of its counsel in connection with its
actions under this Section 10.8.
SECTION 10.9. Purchaser Protected.
In no event shall any purchaser in good faith of any property
purported to be released hereunder be bound to ascertain the authority of the
Collateral Agent or the Trustee to
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execute the release or to inquire as to the satisfaction of any conditions
required by the provisions hereof for the exercise of such authority or to see
to the application of any consideration given by such purchaser or other
transferee; nor shall any purchaser or other transferee of any property or
rights permitted by this Article X to be sold be under obligation to ascertain
or inquire into the authority of the Company to make any such sale or other
transfer.
SECTION 10.10. Powers Exercisable by Receiver or Trustee.
In case the Collateral shall be in the possession of a receiver or
trustee, lawfully appointed, the powers conferred in this Article X upon the
Company with respect to the release, sale or other disposition of such property
may be exercised by such receiver or trustee, and an instrument signed by such
receiver or trustee shall be deemed the equivalent of any similar instrument of
the Company or of any officer or officers thereof required by the provisions of
this Article X.
SECTION 10.11. Disposition of Obligations Received.
All purchase money or other obligations received by the Trustee under
this Article X shall be held by the Trustee, as a part of the Collateral. Upon
payment in cash or Cash Equivalents by or on behalf of the Company or the
obligor thereof to the Trustee of the entire unpaid principal amount of any
such obligation, to the extent not constituting Net Cash Proceeds from an Asset
Sale which may possibly be required, through the passage of time or otherwise,
to be used to purchase Securities pursuant to Section 4.14, the Trustee shall
promptly release and transfer such obligation and any mortgage securing the
same upon receipt of any documentation that the Trustee may reasonably require.
Any cash or Cash Equivalents received by the Trustee in respect of the
principal of any such obligations shall be held by the Trustee as Trust Moneys
under Article XI subject to application as therein provided. Unless and until
the Securities are accelerated, pursuant to Section 6.2, all interest and other
income on any such obliga-
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tions, when received by the Trustee, shall be paid to the Company from
time to time in accordance with Section 11.7. If the Securities have been
accelerated pursuant to Section 6.2, any such interest or other income not
theretofore paid, when collected by the Trustee, shall be applied by the
Trustee, as the case may be, in accordance with Section 6.10.
SECTION 10.12. Determinations Relating to Collateral.
In the event (i) the Trustee shall receive any written request from
the Company under any Security Document for consent or approval with respect to
any matter or thing relating to any Collateral or the Company's obligations
with respect thereto or (ii) there shall be due to or from the Trustee or the
Collateral Agent under the provisions of any Security Document any performance
or the delivery of any instrument or (iii) the Trustee or the Collateral Agent
shall become aware of any nonperformance by the Company of any covenant or any
breach of any representation or warranty of the Company set forth in any
Security Document, then, in each such event, the Trustee or the Collateral
Agent, as applicable, shall be entitled to hire experts, consultants, agents
and attorneys to advise the Trustee or the Collateral Agent, as applicable, on
the manner in which the Trustee should respond to such request or render any
requested performance or response to such nonperformance or breach (the
expenses of which shall be reimbursed to the Trustee or the Collateral Agent,
as applicable, pursuant to Section 7.7 hereof). The Trustee or the Collateral
Agent, as applicable, shall be fully protected in the taking of any action
recommended or approved by any such expert, consultant, agent or attorney or
agreed to by a majority of Holders pursuant to Section 6.5.
SECTION 10.13. Renewal and Refunding.
Nothing in this Article X shall prevent (a) the renewal or extension,
without impairment of the Lien of the Security Documents, at the same or at a
lower or higher rate of interest, of any of the obligations or Indebtedness of
any corporation included in the Collateral or (b) the issue in substitu-
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tion for any such obligations or Indebtedness of other obligations or
Indebtedness of such corporation for equivalent amounts and of substantially
equal or superior rank as to security, if any; provided, however, that every
such obligation or Indebtedness as so renewed or extended shall continue to be
subject to the Lien of the Security Documents and every substituted obligation
of Indebtedness and the evidence thereof shall be deposited and pledged with
the Trustee.
SECTION 10.14. Release upon Termination of the Company's Obligations.
In the event that the Company delivers an officers, Certificate
certifying that all of their respective obligations under the Indenture have
been satisfied and discharged by complying with the provisions of Article VIII,
the Trustee shall (i) execute and deliver such releases, termination statements
and other instruments as the Company may reasonably request evidencing the
termination of the Liens created by the Security Documents and (ii) not be
deemed to hold such Liens for the benefit of the Holders.
ARTICLE XI
APPLICATION OF TRUST MONEYS
SECTION 11.1. "Trust Moneys" Defined.
All cash or Cash Equivalents received by the Trustee in accordance
with the terms of the Indenture and the Security Documents:
(a) upon the release of property from the Lien of any of the
Indenture and/or the Security Documents, including, without limitation,
all moneys received in respect of the principal of all purchase money,
governmental and other obligations; or
(b) as a Net Award or Net Awards upon the Taking of all or any part
of the Collateral; or
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(c) as Net Proceeds upon the Destruction of all or any part of the
Collateral (other than any liability insurance proceeds payable to the
Trustee for any loss, liability or expense incurred by it); or
(d) pursuant to the provisions of a Mortgage; or
(e) as proceeds of any other sale or other disposition of all or any
part of the Collateral by or on behalf of the Trustee or any collection,
recovery, receipt, appropriation or other realization of or from all or
any part of the Collateral pursuant to the Indenture or any of the
Security Documents or otherwise; or
(f) for application under this Article XI as elsewhere provided in
this Indenture or any Security Document, or whose disposition is not
elsewhere otherwise specifically provided for herein or in any Security
Document;
(all such moneys being herein sometimes called "Trust Moneys"; provided,
however, that Trust Moneys shall not include any property deposited with the
Trustee pursuant to Section 4.17 or Articles III or VIII or delivered to or
received by the Trustee pursuant to Section 6.10 hereof) shall be held by the
Trustee for the benefit of the Holders as a part of the Collateral and, upon
any entry upon or sale or other disposition of the Collateral or any part
thereof pursuant to any of the Security Documents, such Trust Moneys shall be
applied in accordance with Section 6.10; but, prior to any such entry, sale or
other disposition, all or any part of the Trust Moneys may be withdrawn, and
shall be released, paid or applied by the Trustee, from time to time as
provided in this Article XI.
On the Issue Date there shall be established and, at all times
hereafter until this Indenture shall have terminated, there shall be maintained
with the Trustee an account which shall be entitled the "Collateral Account"
(the "Collateral Account"). The Collateral Account shall be established and
maintained by the Trustee at its corporate trust offices. All Trust Moneys
which are received by the Trustee shall be deposited in the Collateral Account
and thereafter shall be held,
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applied and/or disbursed by the Trustee in accordance with the terms of
this Article XI.
SECTION 11.2. Retirement of Securities.
Except as otherwise required by the Security Documents, the Trustee
shall apply Trust Moneys from time to time to the payment of the principal of
and interest on any Securities, on any Maturity Date or to the redemption
thereof or the purchase thereof upon tender or in the open market or at private
sale or upon any exchange or in any one or more of such ways, including,
without limitation, pursuant to an offer to purchase under Section 4.14, or a
Change of Control Offer under Section 4.17, as the Company shall request in
writing, upon receipt by the Trustee of the following:
(a) Board Resolutions of the Company directing the application
pursuant to this Section 11.2 of a specified amount of Trust Moneys and,
if such moneys are to be applied to payment, designating the Securities so
to be paid and, if such moneys are to be applied to the purchase of
Securities, prescribing the method of purchase, the price or prices to be
paid and the maximum principal amount of Securities to be purchased and
any other provisions of this Indenture governing such purchase;
(b) cash in the maximum amount of the accrued interest, if any,
required to be paid in connection with any such purchase, which cash shall
be held by the Trustee in trust for such purpose;
(c) an officers, Certificate, dated not more than five Business Days
prior to the date of the relevant application stating (i) that no Default
or Event of Default exists unless such Default or Event of Default would
be cured thereby, and (ii) that all conditions precedent and covenants
herein provided for relating to such application of Trust Moneys have been
complied with; and
(d) an opinion of Counsel stating that the documents and the cash or
Cash Equivalents, if any, which have been
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or are therewith delivered to and deposited with the Trustee conform to
the requirements of this Indenture and that all conditions precedent
herein provided for relating to such application of Trust Moneys have been
complied with.
Upon compliance with the foregoing provisions of this Section, the
Trustee shall apply Trust Moneys as directed and specified by such Board
Resolution, up to, but not exceeding, the principal amount of the Securities so
paid or purchased, using the cash deposited pursuant to paragraph (b) of this
Section 11.2, to the extent necessary, to pay any accrued interest required in
connection with such purchase.
To the extent that any Trust Moneys consist of Trust Moneys received
by the Trustee pursuant to the provisions of Section 4.16 and the Company has
made an Asset Sale Offer which is not fully subscribed to by the Holders, the
Trust Moneys remaining after completion of the Asset Sale Offer may be
withdrawn by the Company and shall be paid by the Trustee to the Company (or as
otherwise directed by the Company) upon a Company Order to the Trustee and upon
receipt by the Trustee of the following:
(a) A notice which shall (A) refer to this Section 11.2 and (B)
describe with particularity the Asset Sale from which such Trust Moneys
were held as Collateral, the amount of Trust Moneys applied to the
purchase of Securities pursuant to the Asset Sale Offer and the remaining
amount of Trust Moneys to be released to the Company;
(b) An officer's Certificate certifying that (A) the release of the
Trust Moneys complies with the terms and conditions of Section 4.14, (B)
there is no Default or Event of Default in effect or continuing on the
date hereof, (C) the release of the Trust Moneys will not result in a
Default or Event of Default hereunder, and (D) all conditions precedent
and covenants herein provided relating to such release have been complied
with;
(c) All documentation required under TIA Section 314(d); and
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(d) An Opinion of Counsel stating that the documents that have been
or are therewith delivered to the Collateral Agent and the Trustee conform
to the requirements of this Indenture and that all conditions precedent
herein provided for relating to such application of Trust Moneys have been
complied with.
SECTION 11.3. Withdrawals of Insurance Proceeds and Condemnation
Awards.
To the extent that any Trust Moneys consist of either (a) any Net
Proceeds or (b) any Net Award or the proceeds of any of the Collateral subject
to a Taking or sold pursuant to the exercise by the United States of America or
any state, municipality or other governmental authority of any right which it
may then have to purchase, or to designate a purchaser or to order a sale of
any part of the Collateral, such Trust Moneys may be withdrawn by the Company
and shall be paid by the Trustee upon a request by the Company by the proper
officer or officers of the Company to reimburse the Company for expenditures
made, or to pay costs incurred, by the Company to repair, rebuild or replace
the property destroyed, damaged or taken, upon receipt by the Trustee of the
following:
(a) an Officers' Certificate of the Company, dated not more than 30
days prior to the date of the application for the withdrawal and payment
of such Trust Moneys and signed also in the case of the following clauses
(i), (iv) and (vi), by an Appraiser or Financial Advisor, certifying:
(i) that expenditures have been made, or costs incurred, by the
Company in a specified amount for the purpose of making certain
repairs, rebuildings and replacements of the Collateral, which shall
be briefly described, and stating the Fair Value thereof to the
Company at the date of the acquisition thereof by the Company, except
that it shall not be necessary under this clause (i) to state the
Fair Value of any such repairs, rebuildings or replacements that are
separately described pursuant to clause (vi) of this
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paragraph (a) and whose Fair Value is stated in the Independent
Appraiser's or Independent Financial Advisor's certificate under paragraph
(c) of this Section 11.3;
(ii) that no part of such expenditures in any previous or then pending
application has been or is being made the basis for the withdrawal of any
Trust Moneys pursuant to this Section 11.3;
(iii) that there is no outstanding Indebtedness, other than costs for
which payment is being requested, for the purchase price or construction
of such repairs, rebuildings or replacements, or for labor, wages,
materials or supplies in connection with the making thereof, which, if
unpaid, might become the basis of a vendorls, mechanic's, laborer's,
materialman's, statutory or other similar Lien upon any of such repairs,
rebuildings or replacement, which Lien might, in the opinion of the
signers of such certificate, materially impair the security afforded by
such repairs, rebuildings or replacement;
(iv) that the property to be repaired, rebuilt or replaced is
necessary or desirable in the conduct of the Company's business;
(v) whether any part of such repairs, rebuildings or replacements
within six months before the date of acquisition thereof by the Company,
has been used or operated by others than the Company in a business similar
to that in which such property has been or is to be used or operated by
the Company, and whether the fair value to the Company, at the date of
such acquisition, of such part of such repairs, rebuildings or replacement
is at least $250,000, and 1% of the aggregate principal amount of the
outstanding Securities; and, if all of such facts are present, such part
of such repairs, rebuildings or replacements shall be separately
described, and it shall be stated that an Independent Appraiser's or
Independent
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Financial Advisor's certificate as to the Fair Value to the Company of
such separately described repairs, rebuildings or replacements will be
furnished under paragraph (b) of this Section 11.3;
(vi) that no Default or Event of Default shall have occurred and be
continuing; and
(vii) that all conditions precedent herein provided for relating to
such withdrawal and payment have been complied with.
(b) all documentation required under TIA Section 314(d).
(c) In case any part of such repairs, rebuildings or replacements is
separately described pursuant to the foregoing clause (vi) of paragraph (a) of
this Section 11.3, a certificate of an Independent Appraiser or Independent
Financial Advisor stating the fair value to the Company, in such Independent
Appraiser's or Independent Financial Advisor's opinion, of such separately
described repairs, rebuildings or replacements at the date of the acquisition
thereof by the Company.
(d) (i) In case any part of such repairs, rebuildings or replacements
constitutes Real Property:
(1) with respect to any such repairs, rebuildings or replacements
that are not encompassed within or are not erected upon Mortgaged
Property, an instrument or instruments in recordable form sufficient for
the Lien of this Indenture and any Mortgage to cover such repairs,
rebuildings or replacements which, if such repairs, rebuildings or
replacements include leasehold or easement interests, shall include normal
and customary provisions with respect thereto and evidence of the filing
of all such documents as may be necessary to perfect such Liens;
(2) a policy of title insurance (or a commitment to issue title
insurance) insuring that the Lien
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of this Indenture and any Mortgage constitutes a direct and valid and
perfected first priority mortgage Lien on such repairs, rebuildings or
replacements in an aggregate amount equal to the fair value of such
repairs, rebuildings or replacements, together with such endorsements and
other opinions as are contemplated by Section 10.2(b)(ii), or with respect
to any such repairs, rebuildings or replacements that are encompassed
within or are erected upon Mortgaged Property an endorsement to the title
insurance policy issued pursuant to Section 10.2(b)(ii) regarding the
affected Mortgaged Property confirming that such repairs, rebuildings or
replacements are encumbered by the first priority Lien of the applicable
Mortgage;
(3) in the event such repairs, rebuildings or replacements have a
fair value in excess of $250,000, a Survey with respect thereto; and
(4) evidence of payment or a closing statement indicating payments to
be made by the Company of all title premiums, recording charges, transfer
taxes and other costs and expenses, including reasonable legal fees and
disbursements of counsel for the Trustee (and any local counsel), that may
be incurred to validly and effectively subject such repairs, rebuildings
or replacements to the Lien of any applicable Security Document to perfect
such Lien; and
(ii) in case any part of such repairs, rebuildings or replacements
constitutes personal property interests:
(1) an instrument in recordable form sufficient for the Lien of any
applicable Security Document to cover such repairs, rebuildings or
replacements; and
(2) evidence of payment or a closing statement indicating payments to
be made by the Company of all filing fees, recording charges, transfer
taxes and other costs and expenses, including reasonable legal fees and
disbursements of counsel for the Trustee
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(and any local counsel), that may be incurred to validly and
effectively subject such repairs, rebuildings or replacements to the Lien
of any Security Document.
(e) An Opinion of Counsel substantially stating:
(i) that the instruments that have been or are therewith delivered to
the Trustee conform to the requirements of this Indenture or any other
Security Document, and that, upon the basis of such request of the Company
and the accompanying documents specified in this Section 11.3, all
conditions precedent herein provided for relating to such withdrawal and
payment have been complied with, and the Trust Moneys whose withdrawal is
then requested may be lawfully paid over under this Section 11.3
(ii) that the Company has acquired title to such repairs, rebuildings
and replacements at least the equivalent to its title to the property
destroyed, damaged or taken, and that the same and every part thereof are
free and clear of all Liens prior to the Lien of any of the Security
Documents, except Liens of the type permitted under the applicable
Security Document to which the property so destroyed, damaged or taken
shall have been subject at the time of such destruction, damage or taking;
and
(iii) that all of the Company's right, title and interest in and to
said repairs, rebuildings or replacements, or combination thereof, are
then subject to the Lien of any of the Security Documents.
Upon compliance with the foregoing provisions of this Section 11.3,
the Trustee shall pay on the written request of the Company an amount of Trust
Moneys of the character aforesaid equal to the amount of the expenditures or
costs stated in the Officers' Certificate required by clause (i) of paragraph
(a) of this Section 11.3, or the fair value to the Company of such repairs,
rebuildings and replacements stated in
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such Officers, Certificate (and in such Independent Appraiser's or
Independent Financial Advisor's certificate, if required by paragraph (b) of
this Section 11.3), whichever is less.
SECTION 11.4. Withdrawal of Trust Moneys for Reinvestment.
To the extent that any Trust Moneys consist of Net Cash Proceeds
received by the Trustee pursuant to Section 4.14 and the Company intends to
reinvest such Net Cash Proceeds in a manner that would constitute a Related
Business Investment, such Trust Moneys may be withdrawn by the Company and
shall be paid by the Trustee upon a written request by the Company by the
proper officer or officers of the Company, to reimburse the Company for
expenditures made or to pay costs incurred by the Company in connection with
such Related Business Investment, upon receipt by the Trustee of the following:
(a) If the Related Business Investment to be made is an investment in
Real Property, the Company shall also deliver to the Trustee and the
Collateral Agent:
(i) an instrument or instruments in recordable form sufficient
for the Lien of any Mortgage to cover such Real Property which, if
the Real Property is a leasehold or easement interest, shall include
normal and customary provisions with respect thereto and evidence of
the filing of all such financing statements and other instruments as
may be necessary to perfect such Liens;
(ii) a policy of title insurance (or a commitment to issue
title insurance) insuring that the Lien of this Indenture and any
Mortgage constitutes a valid and perfected mortgage Lien on such Real
Property (subject to no Liens other than Prior Liens of the type
which were permitted with respect to the Collateral which was the
subject of the Asset Sale) in an aggregate amount equal to the Fair
Market Value of the Real Property, together with an Officers,
Certificate stating that any specific exceptions to such
<PAGE> 166
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title insurance are Prior Liens of the type which were
permitted with respect to the Collateral which was the subject of the
Asset Sale, together with such endorsements and other opinions as are
contemplated by Section 10.2(b)(ii);
(iii) in the event such Real Property has a fair market value
in excess of $250,000, a Survey with respect thereto; and
(iv) evidence of payment or a closing statement indicating
payments to be made by the Company of all title premiums, recording
charges, transfer taxes and other costs and expenses, including
reasonable legal fees and disbursements of counsel for the Trustee
(and any local counsel), that may be incurred to validly and
effectively subject the Real Property to the Lien of any applicable
Security Document and to perfect such Lien.
(b) If the Related Business Investment is a personal property
interest, the Company shall deliver to the Trustee and the Collateral
Agent:
(i) an instrument in recordable form sufficient for the Lien of
any applicable Security Document to cover such personal property
interest; and
(ii) evidence of payment or a closing statement indicating
payments to be made by the Company of all filing fees, recording
charges, transfer taxes and other costs and expenses, including
reasonable legal fees and disbursements of counsel for the Trustee
(and any local counsel), that may be incurred to validly and
effectively subject the Related Business Investment to the Lien of
any Security Document and to perfect such Lien.
(c) all documentation required under TIA Section 314(d); and
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(d) An Opinion of Counsel stating that the documents that have
been or are therewith delivered to the Trustee conform to the requirements
of this Indenture and that all conditions precedent herein relating to
such application of Trust Moneys have been complied with.
SECTION 11.5. Powers Exercisable Notwithstanding Event of Default.
In case an Event of Default shall have occurred and shall be
continuing, the Company, while in possession of the Collateral (other than
cash, Cash Equivalents, securities and other personal property held by, or
required to be deposited or pledged with, the Trustee hereunder or under the
Security Documents or with the trustee, mortgagee or other holder of a Prior
Lien), may do any of the things enumerated in Sections 11.2 and 11.3 if the
Holders of a majority in aggregate principal amount of the Securities
outstanding, by appropriate action of such Holders, shall consent to such
action, in which event any certificate filed under any of such Sections shall
omit the statement to the effect that no Event of Default has occurred and is
continuing. This Section 11.5 shall not apply, however, during the continuance
of an Event of Default of the type specified in Section 6.1(a)(i) or (ii).
SECTION 11.6. Powers Exercisable by Trustee or Receiver.
In case the Collateral (other than any cash, Cash Equivalents,
securities and other personal property held by, or required to be deposited or
pledged with, the Trustee hereunder or under the Security Documents or with the
trustee, mortgagee or holder of a Prior Lien) shall be in the possession of a
receiver or trustee lawfully appointed, the powers hereinbefore in this Article
XI conferred upon the Company with respect to the withdrawal or application of
Trust Moneys may be exercised by such receiver or trustee, in which case a
certificate signed by such receiver or trustee shall be deemed the equivalent
of any Officers' Certificate required by this Article XI. If the Trustee shall
be in possession of any of the Collateral
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hereunder or under any of the Security Documents, such powers may be
exercised by the Trustee, in its discretion.
SECTION 11.7. Disposition of Securities Retired.
All Securities received by the Trustee and for whose purchase Trust
Moneys are applied under this Article XI, if not otherwise cancelled, shall be
promptly delivered to the Trustee for cancellation and destruction unless the
Trustee shall be otherwise directed by the Company. Upon destruction of any
Securities, the Trustee shall issue a certificate of destruction to the
Company.
SECTION 11.8. Investment of Trust Moneys.
All or any part of any Trust Moneys held by the Trustee hereunder
(except such as may be held for the account of any particular Securities) shall
from time to time be invested or reinvested by the Trustee in any Cash
Equivalents or, with respect to Net Cash Proceeds from Asset Sales, in any
Permitted Investments pursuant to the direction of the Company which shall
specify the Permitted Investment in which such Net Cash Proceeds shall be
invested and the maturity date of such investment, as provided in Section 4.14.
Unless an Event of Default occurs and is continuing, any interest on such Cash
Equivalents or Permitted Investments (in excess of any accrued interest paid at
the time of purchase) which may be received by the Trustee shall be forthwith
paid to the Company. Such Cash Equivalents and Permitted Investments shall be
held by the Trustee as a part of the Collateral, subject to the same provisions
hereof as the cash used by it to purchase such Cash Equivalents or Permitted
Investments.
The Trustee shall not be liable or responsible for any loss resulting
from such investments or sales except only for its own grossly negligent
action, its own grossly negligent failure to act or its own willful misconduct
in complying with this Section 11.8.
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ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by
the TIA, the required provision shall control.
SECTION 12.2. Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in Person or mailed by first-class mail addressed as follows:
(a) if to the Company:
TOM'S FOODS INC.
900 8th Street Columbus, Georgia 31902
Attention: Chief Financial officer
(b) if to the Trustee:
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
Re: Tom's Foods Inc.
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder, including any
notice delivered in connection with TIA Section 310(b), TIA Section 313(c),
TIA Section 314(a) and TIA Section 315(b), shall be mailed to him,
first-class postage prepaid, at his address as it appears on the registration
books of the Registrar and shall
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be sufficiently given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given
only when received, if a notice or communication is mailed in the manner
provided above, it is duly given, whether or not the addressee receives it.
SECTION 12.3. Communications by Holders with other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA Section 312(c).
SECTION 12.4. Certificate and Opinion of Counsel as to Conditions
Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee at
the request of the Trustee (a) an Officers, Certificate in form and substance
satisfactory to the Trustee stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (b) if requested by the Trustee, an
Opinion of Counsel in form and substance satisfactory to the Trustee stating
that, in the opinion of counsel, all such conditions have been complied with
and (c) where applicable, a certificate or opinion by an Independent certified
public accountant satisfactory to the Trustee that complies with TIA Section
314(c).
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SECTION 12.5. Statements Required in Certificate and Oipinion of
Counsel.
Each certificate and opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate has read such
covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements contained in such certificate
are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is reasonably necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 12.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Securityholders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 12.7. Legal Holidays.
If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
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SECTION 12.8. Governing Law.
The internal laws of the State of New York shall govern this Indenture
and the Securities without regard to principles of conflict of laws.
SECTION 12.9. No Recourse Against Others.
A trustee, director, officer, employee, stockholder or beneficiary, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
SECTION 12.10. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind their respective successors. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 12.11. Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.12. Separability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
SECTION 12.13. Table of Contents, Headings, Etc.
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, and are not to
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be considered a part hereof, and shall in no way modify or restrict any
of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
TOM'S FOODS INC.
By /s/ S. Albert Gaston
-----------------------------------
Title: Sr VP & CFO
IBJ SCHRODER BANK & TRUST COMPANY, as
Trustee and as Collateral Agent
By /s/ Terence Rawlins
-----------------------------------
Title: Assistant Vice President
<PAGE> 1
Exhibit 10.1
- - -------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of October 14, 1997
Among
TOM'S FOODS INC.
as Issuer
and
PAINEWEBBER INCORPORATED
as Initial Purchaser
10-1/2% Senior Secured Notes due November 1, 2004
- - -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions ....................................................... 1
2. Exchange Offer .................................................... 4
3. Shelf Registration ................................................ 7
4. Additional Interest ............................................... 9
5. Registration Procedures ........................................... 10
6. Registration Expenses ............................................. 19
7. Indemnification ................................................... 20
8. Rules 144 and 144A ................................................ 23
9. Underwritten Registrations ........................................ 24
10. Miscellaneous ..................................................... 24
(a) No Inconsistent Agreements ................................... 24
(b) Adjustments Affecting Registrable Notes ...................... 24
(c) Amendments and Waivers ....................................... 24
(d) Notices ...................................................... 25
(e) Successors and Assigns ....................................... 25
(f) Counterparts ................................................. 26
(g) Headings ..................................................... 26
(h) Governing Law ................................................ 26
(i) Severability ................................................. 26
(j) Securities Held by the Issuer or Its Affiliates .............. 26
(k) Third-Party Beneficiaries .................................... 26
(l) Entire Agreement ............................................. 26
</TABLE>
-i-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated as of
October 14, 1997, among TOM'S FOODS INC., a Delaware corporation as issuer,
(the "Issuer") and PAINEWEBBER INCORPORATED, as initial purchaser (the "Initial
Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of October 8, 1997, among the Issuer and the Initial
Purchaser (the "Purchase Agreement"), which provides for the sale by the Issuer
to the Initial Purchaser of $60,000,000 aggregate principal amount of the
Issuer's 10-1/2% Senior Secured Notes due November 1, 2004 (the "Notes"). In
order to induce the Initial Purchaser to enter into the Purchase Agreement, the
Issuer has agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchaser and any subsequent holder or
holders of the Notes. The execution and delivery of this Agreement is a
condition to the Initial Purchaser's obligation to purchase the Notes under the
Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Additional Interest: See Section 4 hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Applicable Period: See Section 2 hereof.
Effectiveness Date: The 150th day after the Issue Date; provided,
however, that with respect to any Shelf Registration, the Effectiveness Date
shall be the 90th day after the Filing Date with respect thereto.
Effectiveness Period: See Section 3 hereof.
Event Date: See Section 4 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2 hereof.
-1-
<PAGE> 4
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Exchange Offer: See Section 2 hereof.
Exchange Offer Registration Statement: See Section 2 hereof.
Filing Date: (A) If no Registration Statement has been filed by the
Issuers pursuant to this Agreement, the 60th day after the Issue Date;
provided, however, that if a Shelf Notice is given within 10 days of the Filing
Date, then the Filing Date with respect to the Initial Shelf Registration shall
be the 30th calendar day after the date of the giving of such Shelf Notice; and
(B) in each other case (which may be applicable notwithstanding the
consummation of the Exchange Offer), the 30th day after the delivery of a Shelf
Notice.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of October 14, 1997, by and among the
Issuer and IBJ Schroder Bank & Trust Company, as Trustee, pursuant to which
the Notes are being issued, as the same may be amended or supplemented from
time to time in accordance with the terms thereof.
Initial Purchaser: See the introductory paragraphs hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: October 14], 1997, the date of original issuance of the
Notes.
Issuers: See the introductory paragraphs hereto.
NASD: See Section 5(s) hereof.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2 hereof.
Person: An individual, trustee, corporation, partnership, joint stock
Issuer, trust, unincorporated association, union, business association, firm or
other legal entity.
Private Exchange: See Section 2 hereof.
Private Exchange Notes: See Section 2 hereof.
<PAGE> 5
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Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act and any term sheet filed pursuant to Rule
434 under the Securities Act), as amended or supplemented by any prospectus
supplement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
Records: See Section 5(n) hereof.
Registrable Notes: Each Note upon its original issuance and at all times
subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is
applicable upon original issuance and at all times subsequent thereto and each
Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until (i) a Registration Statement (other than, with
respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable,
the Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the SEC and such Note,
Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes that may be resold without restriction under state and federal
securities laws, (iii) such Note, Exchange Note or Private Exchange Note, as
the case may be, ceases to be outstanding for purposes of the Indenture or (iv)
such Note, Exchange Note or Private Exchange Note, as the case may be, may be
resold without restriction pursuant to Rule 144 under the Securities Act.
Registration Statement: Any registration statement of the Issuer that
covers any of the Notes, the Exchange Notes or the Private Exchange Notes filed
with the SEC under the Securities Act, including the Prospectus, amendments and
supplements to such registration statement, including post-effective
amendments, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the issuer of such securities
being free of the registration and prospectus delivery requirements of
the Securities Act.
<PAGE> 6
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Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2 hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture.
Underwritten registration or underwritten offering: A registration in
which securities of the Issuer are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
(a) The Issuer shall file with the SEC, no later than the Filing Date, a
Registration Statement (the "Exchange Offer Registration Statement") on an
appropriate registration form with respect to a registered offer (the "Exchange
Offer") to exchange any and all of the Registrable Notes for a like aggregate
principal amount of notes (the "Exchange Notes") of the Issuer that are
identical in all material respects to the Notes except that the Exchange Notes
shall contain no restrictive legend thereon. The Exchange Offer shall comply
with all applicable tender offer rules and regulations under the Exchange Act
and other applicable law. The Issuer shall use its best efforts to (x) cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer
open for at least 30 days (or longer if required by applicable law) after the
date that notice of the Exchange Offer is mailed to Holders; and (z) consummate
the Exchange Offer on or prior to the 45th day following the date on which the
Exchange Offer Registration Statement is declared effective by the SEC. If,
after the Exchange Offer Registration Statement is initially declared
effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes
thereunder is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, the Exchange
Offer
<PAGE> 7
-5-
Registration Statement shall be deemed not to have become effective for
purposes of this Agreement.
Each Holder that participates in the Exchange Offer will be required, as a
condition to its participation in the Exchange Offer, to represent to the
Issuer in writing (which may be contained in the applicable letter of
transmittal) that any Exchange Notes to be received by it will be acquired in
the ordinary course of its business, that at the time of the consummation of
the Exchange Offer such Holder will have no arrangement or understanding with
any Person to participate in the distribution of the Exchange Notes in
violation of the provisions of the Securities Act, and that such Holder is not
an affiliate of the Issuer within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with this Section 2,
the provisions of this Agreement shall continue to apply, mutatis mutandis,
solely with respect to Registrable Notes that are Private Exchange Notes,
Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange Notes
held by Participating Broker-Dealers (as defined), and the Issuer shall have no
further obligation to register Registrable Notes (other than Private Exchange
Notes and other than in respect of any Exchange Notes as to which clause
2(c)(iv) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement.
(b) The Issuer shall include within the Prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Holders, which shall contain a
summary statement of the positions taken or policies made by the staff of the
SEC with respect to the potential "underwriter" status of any broker-dealer
that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act)
of Exchange Notes received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
publicly disseminated by the staff of the SEC or such positions or policies
represent the prevailing views of the staff of the SEC. Such "Plan of
Distribution" section shall also expressly permit, to the extent permitted by
applicable policies and regulations of the SEC, the use of the Prospectus by
all Persons subject to the prospectus delivery requirements of the Securities
Act, including, to the extent permitted by applicable policies and regulations
of the SEC, all Participating Broker-Dealers, and include a statement
describing the means by which Participating Broker-Dealers may resell the
Exchange Notes in compliance with the Securities Act.
The Issuer shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the Prospectus
contained therein in order to permit such Prospectus to be lawfully delivered
by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with
applicable law in connection with any resale of the Exchange Notes covered
thereby; pro-
<PAGE> 8
-6-
vided, however, that such period shall not exceed 180 days after such
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
If, prior to consummation of the Exchange Offer, any Holder holds any
Notes acquired by it that have, or that are reasonably likely to be determined
to have, the status of an unsold allotment in an initial distribution, or any
Holder is not entitled to participate in the Exchange Offer, the Issuer upon
the request of any such Holder shall simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to any such Holder, in
exchange (the "Private Exchange") for such Notes held by any such Holder, a
like principal amount of notes (the "Private Exchange Notes") of the Issuer
that are identical in all material respects to the Exchange Notes except for
the placement of a restrictive legend on such Private Exchange Notes. The
Private Exchange Notes shall be issued pursuant to the same Indenture as the
Exchange Notes and bear the same CUSIP number as the Exchange Notes.
In connection with the Exchange Offer, the Issuer shall:
(1) mail, or cause to be mailed, to each Holder entitled to
participate in the Exchange Offer a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(2) keep the Exchange Offer open for not less than 30 days after the
date that notice of the Exchange Offer is mailed to Holders (or longer if
required by applicable law);
(3) utilize the services of a depositary for the Exchange Offer with an
address in the Borough of Manhattan, The City of New York;
(4) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Exchange Offer shall remain open; and
(5) otherwise comply in all material respects with all applicable laws,
rules and regulations.
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Issuer shall:
(1) accept for exchange all Registrable Notes validly tendered and not
validly withdrawn pursuant to the Exchange Offer and the Private Exchange,
if any;
<PAGE> 9
-7-
(2) deliver to the Trustee for cancellation all Registrable Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each Holder
of Notes, Exchange Notes or Private Exchange Notes, as the case may be,
equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Offer and the Private Exchange shall not be subject to any
conditions, other than that (i) the Exchange Offer or Private Exchange, as the
case may be, does not violate applicable law or any applicable interpretation
of the staff of the SEC, (ii) no action or proceeding shall have been
instituted or threatened in any court or by any governmental agency which might
materially impair the ability of the Issuer to proceed with the Exchange Offer
or the Private Exchange, and no material adverse development shall have
occurred in any existing action or proceeding with respect to the Issuer and
(iii) all governmental approvals shall have been obtained, which approvals the
Issuer deems necessary for the consummation of the Exchange Offer or Private
Exchange.
The Exchange Notes and the Private Exchange Notes shall be issued under
(i) the Indenture or (ii) an indenture identical in all material respects to
the Indenture and which, in either case, has been qualified under the TIA or is
exempt from such qualification and shall provide that the Exchange Notes shall
not be subject to the transfer restrictions set forth in the Indenture. The
Indenture or such indenture shall provide that the Exchange Notes, the Private
Exchange Notes and the Notes shall vote and consent together on all matters as
one class and that none of the Exchange Notes, the Private Exchange Notes or
the Notes will have the right to vote or consent as a separate class on any
matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Issuer is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not consummated within 195 days
of the Issue Date, (iii) any holder of Private Exchange Notes so requests in
writing to the Issuer within 60 days after the consummation of the Exchange
Offer, or (iv) in the case of any Holder that participates in the Exchange
Offer, such Holder does not receive Exchange Notes on the date of the exchange
that may be sold without restriction under state and federal securities laws
(other than due solely to the status of such Holder as an affiliate of the
Issuer within the meaning of the Securities Act), then in the case of each of
clauses (i) to and including (iv) of this sentence, the Issuer shall promptly
deliver to the Holders and the Trustee written notice thereof (the "Shelf
Notice") and shall file a Shelf Registration pursuant to
Section 3 hereof.
3. Shelf Registration
If at any time a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
<PAGE> 10
-8-
(a) Shelf Registration. The Issuer shall file with the SEC a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Registrable Notes not exchanged in the Exchange Offer,
Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is
applicable (the "Initial Shelf Registration"). The Issuer shall use its best
efforts to file with the SEC the Initial Shelf Registration on or before the
applicable Filing Date. The Initial Shelf Registration shall be on Form S-3 or
another appropriate form permitting registration of such Registrable Notes for
resale by Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Issuer shall not
permit any securities other than the Registrable Notes to be included in the
Initial Shelf Registration or any Subsequent Shelf Registration (as defined
below).
The Issuer shall use its best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act on or prior to
the Effectiveness Date and to keep the Initial Shelf Registration continuously
effective under the Securities Act until the date which is three years from the
Effectiveness Date (the "Effectiveness Period"), or such shorter period ending
when (i) all Registrable Notes covered by the Initial Shelf Registration have
been sold in the manner set forth and as contemplated in the Initial Shelf
Registration or (ii) a Subsequent Shelf Registration covering all of the
Registrable Notes covered by and not sold under the Initial Shelf Registration
or an earlier Subsequent Shelf Registration has been declared effective under
the Securities Act; provided, however, that the Effectiveness Period in respect
of the Initial Shelf Registration shall be extended to the extent required to
permit dealers to comply with the applicable prospectus delivery requirements
of Rule 174 under the Securities Act and as otherwise provided herein.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration or
any Subsequent Shelf Registration ceases to be effective for any reason at any
time during the Effectiveness Period (other than because of the sale of all of
the securities registered thereunder), the Issuer shall use its best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event shall within 30 days of such cessation of effectiveness amend
the Initial Shelf Registration in a manner to obtain the withdrawal of the
order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Notes covered by and not sold under the Initial Shelf Registration or an
earlier Subsequent Shelf Registration (each, a "Subsequent Shelf
Registration"). If a Subsequent Shelf Registration is filed, the Issuer shall
use its best efforts to cause the Subsequent Shelf Registration to be declared
effective under the Securities Act as soon as practicable after such filing and
to keep such subsequent Shelf Registration continuously effective for a period
equal to the number of days in the Effectiveness Period less the aggregate
number of days during which the Initial Shelf Registration or any Subsequent
Shelf Registration was previously continuously effective. As used herein the
term "Shelf Registration" means the Initial Shelf Registration and any
Subsequent Shelf Registration.
<PAGE> 11
-9-
(c) Supplements and Amendments. The Issuer shall promptly supplement and
amend any Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested by
the Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement or by any underwriter of such
Registrable Notes.
4. Additional Interest
(a) The Issuer and the Initial Purchasers agree that the Holders will
suffer damages if the Issuer fails to fulfill its obligations under Section 2
or Section 3 hereof and that it would not be feasible to ascertain the extent
of such damages with precision. Accordingly, the Issuer agrees to pay, as
liquidated damages, additional interest on the Notes ("Additional Interest")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration has been filed on or prior to the
applicable Filing Date or (B) notwithstanding that the Issuer has
consummated or will consummate the Exchange Offer, the Issuer is required
to file a Shelf Registration and such Shelf Registration is not filed on
or prior to the Filing Date applicable thereto, then, commencing on the
day after either such Filing Date, Additional Interest shall accrue on the
principal amount of the Notes at a rate of 0.50% per annum for the first
90 days immediately following each such Filing Date, and such Additional
Interest rate shall increase by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration is declared effective by the SEC
on or prior to the relevant Effectiveness Date or (B) notwithstanding that
the Issuer has consummated or will consummate the Exchange Offer, the
Issuer is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the SEC on or prior to
the Effectiveness Date in respect of such Shelf Registration, then,
commencing on the day after such Effectiveness Date, Additional Interest
shall accrue on the principal amount of the Notes at a rate of 0.50% per
annum for the first 90 days immediately following the day after such
Effectiveness Date, and such Additional Interest rate shall increase by an
additional 0.50% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) the Issuer has not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 45th day after the date on which the
Exchange Offer Registra-
<PAGE> 12
-10-
tion Statement relating thereto was declared effective or (B) if
applicable, a Shelf Registration has been declared effective and such
Shelf Registration ceases to be effective at any time during the
Effectiveness Period (other than such time as all Notes have been disposed
of thereunder), then Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.50% per annum for the first 90 days
commencing on the (x) 46th day after such effective date, in the case of
(A) above, or (y) the day such Shelf Registration ceases to be effective
in the case of (B) above, and such Additional Interest rate shall increase
by an additional 0.50% per annum at the beginning of each such subsequent
90-day period;
provided, however, that the Additional Interest rate on the Notes may not
exceed in the aggregate 1.00% per annum; provided, further, however, that (1)
upon the filing of the applicable Exchange Offer Registration Statement or the
applicable Shelf Registration as required hereunder (in the case of clause (i)
above of this Section 4), (2) upon the effectiveness of the Exchange Offer
Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), or (3) upon
the exchange of the applicable Exchange Notes for all Notes tendered (in the
case of clause (iii)(A) of this Section 4), or upon the effectiveness of the
applicable Shelf Registration Statement which had ceased to remain effective
(in the case of (iii)(B) of this Section 4), Additional Interest on the Notes
in respect of which such events relate as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Issuer shall notify the Trustee within three business days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Any amounts of Additional
Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable in cash semiannually on each November 1 and May 1 (to the holders of
record on October 15 and April 15 immediately preceding such dates),
commencing with the first such date occurring after any such Additional
Interest commences to accrue. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Registrable Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant to
Sections 2 or 3 hereof, the Issuer shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof,
<PAGE> 13
-11-
and pursuant thereto and in connection with any Registration Statement filed
by the Issuer hereunder the Issuer shall:
(a) Prepare and file with the SEC prior to the applicable Filing Date, a
Registration Statement or Registration Statements as prescribed by Sections 2
or 3 hereof, and use its best efforts to cause each such Registration Statement
to become effective and remain effective as provided herein; provided, however,
that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus
contained in the Exchange Offer Registration Statement filed pursuant to
Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period relating thereto, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Issuer shall furnish
to and afford the Holders of the Registrable Notes covered by such Registration
Statement or each such Participating Broker-Dealer, as the case may be, their
counsel and the managing underwriters, if any, a reasonable opportunity to
review copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to be
filed (in each case at least five days prior to such filing, or such later date
as is reasonable under the circumstances). The Issuer shall not file any
Registration Statement or Prospectus or any amendments or supplements thereto
if the Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement, or any such Participating
Broker-Dealer, as the case may be, their counsel, or the managing underwriters,
if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented by
any Prospectus supplement required by applicable law, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; and comply with the provisions of the
Securities Act and the Exchange Act applicable to each of them with respect to
the disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus. The Issuer shall be deemed not to have used
their best efforts to keep a Registration Statement effective during the
Effective Period or the Applicable Period, as the case may be, relating
thereto if the Issuer voluntarily takes any action that would result in selling
Holders of the Registrable Notes covered thereby or Participating
Broker-Dealers seeking to sell Exchange Notes not being able to sell such
Registrable Notes or such Exchange Notes during that period unless
such action is required by applicable law or permitted by this Agreement.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is
<PAGE> 14
-12-
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period
relating thereto from whom the Issuer has received written notice that it will
be a Participating Broker-Dealer in the Exchange Offer, notify the selling
Holders of Registrable Notes, or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any, promptly (but
in any event within one day), and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any Holder may, upon
request, obtain, at the sole expense of the Issuer, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated
by reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Issuer contained in
any agreement (including any underwriting agreement) contemplated by Section
5(m) hereof cease to be true and correct in all material respects, (iv) of the
receipt by the Issuer of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or
any of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event, the existence of any condition or any information
becoming known that makes any statement made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in or amendments or supplements to such Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(vi) of the Issuer's determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, use its best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the
qualification (or exemp-
<PAGE> 15
-13-
tion from qualification) of any of the Registrable Notes or the Exchange
Notes to be sold by any Participating Broker-Dealer, for sale in any
jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), the Holders of
a majority in aggregate principal amount of the Registrable Notes being sold in
connection with an underwritten offering or any Participating Broker-Dealer,
(i) as promptly as practicable incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters (if any), such Holders, any Participating Broker-Dealer or counsel
for any of them reasonably request to be included therein, (ii) make all
required filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Issuer has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to such Registration
Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, furnish to each selling Holder of Registrable Notes and
to each such Participating Broker-Dealer who so requests and to their
respective counsel and each managing underwriter, if any, at the sole expense
of the Issuer, one conformed copy of the Registration Statement or Registration
Statements and each post-effective amendment thereto, including financial
statements and schedules, and, if requested, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, deliver to each selling Holder of Registrable Notes, or
each such Participating Broker-Dealer, as the case may be, their respective
counsel, and the underwriters, if any, at the sole expense of the Issuer, as
many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Issuers
hereby consent to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Notes covered by, or the sale by Participating
Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any
amendment or supplement thereto.
<PAGE> 16
-14-
(h) Prior to any public offering of Registrable Notes or any delivery of a
Prospectus contained in the Exchange Offer Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to register or qualify, and to
cooperate with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, Participating Broker-Dealer, or the managing underwriter or
underwriters reasonably request in writing; provided, however, that where
Exchange Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Issuer agrees to cause
its counsel to perform Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section 5(h), keep each
such registration or qualification (or exemption therefrom) effective during
the period such Registration Statement is required to be kept effective and do
any and all other acts or things reasonably necessary or advisable to enable
the disposition in such jurisdictions of the Exchange Notes held by
Participating Broker-Dealers or the Registrable Notes covered by the applicable
Registration Statement; provided, however, that the Issuer shall not be
required to (A) qualify generally to do business in any jurisdiction where it
is not then so qualified, (B) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
(C) subject itself to taxation in excess of a nominal dollar amount in any such
jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Issuer; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary to enable
the seller or sellers thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Registrable Notes, except as may be required
solely as a consequence of the nature of such selling Holder's business, in
which case the Issuer will cooperate in all reasonable respects with the filing
of such Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who
<PAGE> 17
-15-
seeks to sell Exchange Notes during the Applicable Period, upon the
occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof,
as promptly as practicable prepare and (subject to Section 5(a) hereof) file
with the SEC, at the sole expense of the Issuer, a supplement or post-effective
amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Notes being sold thereunder or to the
purchasers of the Exchange Notes to whom such Prospectus will be delivered by a
Participating Broker-Dealer, any such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, the Issuer shall not be required to amend or supplement a
Registration Statement, any related Prospectus or any document incorporated
therein by reference, in the event that, and for a period not to exceed an
aggregate of 60 days in any calendar year if, (i) an event occurs and is
continuing as a result of which the Shelf Registration would, in the Issuer's
good faith judgment, contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and (ii)
(a) the Issuer determines in its good faith judgment that the disclosure of
such event at such time would have a material adverse effect on the business,
operations or prospects of the Issuer or (b) the disclosure otherwise relates
to a pending material business transaction that has not yet been publicly
disclosed.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates
for the Registrable Notes in a form eligible for deposit with The Depository
Trust Issuer and (ii) provide a CUSIP number for the Registrable Notes.
(m) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as is
customary in underwritten offerings of debt securities similar to the Notes in
form and substance reasonably satisfactory to the Issuer and take all such
other actions as are reasonably requested by the managing underwriter or
underwriters in order to expedite or facilitate the registration or the
disposition of such Registrable Notes and, in such connection, (i) make such
representations and warranties to, and covenants with, the underwriters with
respect to the business of the Issuer any of the subsidiaries of the Issuer
(including any acquired business, properties or entity, if applicable) and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings of debt
securities similar to the Notes, and confirm the same in writing if and when
requested in form and substance reasonably satisfactory to the Issuer; (ii)
obtain the written opinions of counsel to the Issuer and written updates
thereof in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters, addressed to the underwriters covering the matters
customarily covered in opinions rea-
<PAGE> 18
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sonably requested in underwritten offerings and such other matters as may
be reasonably requested by the managing underwriter or underwriters; (iii) use
its best efforts to obtain "cold comfort" letters and updates thereof in form,
scope and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent chartered accountants of the Issuer (and, if
necessary, any other independent chartered accountants of the Issuer any
subsidiary of the Issuer or of any business acquired by the Issuer for which
financial statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such other
matters as reasonably requested by the managing underwriter or underwriters as
permitted by the Statement on Auditing Standards No. 72; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the sellers and underwriters, if
any, than those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and the managing
underwriter or underwriters or agents, if any). The above shall be done at
each closing under such underwriting agreement, or as and to the extent
required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or
(2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, make available for inspection by any selling Holder of
such Registrable Notes being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the
case may be, or underwriter (collectively, the "Inspectors"), at the offices
where normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Issuer and any
subsidiaries of the Issuer (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Issuer
and any of its subsidiaries to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement and
Prospectus. Each Inspector shall agree in writing that it will keep the
Records confidential and that it will not disclose any of the Records that the
Issuer determines, in good faith, to be confidential and notifies the
Inspectors in writing are confidential unless (i) the disclosure of such
Records is necessary to avoid or correct a material misstatement or material
omission in such Registration Statement or Prospectus, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, (iii) disclosure of such information is necessary or
advisable, in the opinion of counsel for any Inspector, in connection with any
action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon, relating
to, or
<PAGE> 19
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involving this Agreement or the Purchase Agreement, or any transactions
contemplated hereby or thereby or arising hereunder or thereunder, or (iv) the
information in such Records has been made generally available to the public;
provided, however, that prior notice shall be provided as soon as practicable
to the Issuer of the potential disclosure of any information by such Inspector
pursuant to clauses (i), (ii) or (iii) of this sentence to permit the Issuer to
obtain a protective order (or waive the provisions of this paragraph (n)) and
that such Inspector shall take such actions as are reasonably necessary to
protect the confidentiality of such information (if practicable) to the extent
such action is otherwise not inconsistent with, an impairment of or in
derogation of the rights and interests of the Holder or any Inspector.
(o) Provide an indenture trustee for the Registrable Notes or the Exchange
Notes, as the case may be, and cause the Indenture or the trust indenture
provided for in Section 2(a) hereof, as the case may be, to be qualified under
the TIA not later than the effective date of the first Registration Statement
relating to the Registrable Notes; and in connection therewith, cooperate with
the trustee under any such indenture and the Holders of the Registrable Notes,
to effect such changes to such indenture as may be required for such indenture
to be so qualified in accordance with the terms of the TIA; and execute, and
use its best efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable such indenture to be so qualified in a timely
manner.
(p) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 60 days
after the end of any fiscal quarter (or 120 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Issuer after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
(q) Upon consummation of the Exchange Offer or a Private Exchange, obtain
an opinion of counsel to the Issuer, in a form customary for underwritten
transactions, addressed to the Trustee for the benefit of all Holders of
Registrable Notes participating in the Exchange Offer or the Private Exchange,
as the case may be, that the Exchange Notes or Private Exchange Notes, as the
case may be, and the related indenture constitute legal, valid and binding
obligations of the Issuer, enforceable against it in accordance with their
respective terms, subject to customary exceptions and qualifications.
(r) If the Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Notes by Holders to the Issuer (or to such other
Person as directed by the Issuer) in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may
<PAGE> 20
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be, the Issuer shall mark, or cause to be marked, on such Registrable Notes
that such Registrable Notes are being cancelled in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National Association
of Securities Dealers, Inc. (the "NASD").
(t) Use its best efforts to take all other steps reasonably necessary to
effect the registration of the Exchange Notes and/or Registrable Notes covered
by a Registration Statement contemplated hereby.
The Issuer may require each seller of Registrable Notes as to
which any registration is being effected to furnish to the Issuer such
information regarding such seller and the distribution of such Registrable
Notes as the Issuer may, from time to time, reasonably request. The Issuer may
exclude from such registration the Registrable Notes of any seller so long as
such seller fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is
being effected agrees to furnish promptly to the Issuer all information
required to be disclosed in order to make the information previously furnished
to the Issuer by such seller not materially misleading.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Issuer, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the securities
covered thereby and that such holding does not imply that such Holder will
assist in meeting any future financial requirements of the Issuer, or (ii) in
the event that such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force,
the deletion of the reference to such Holder in any amendment or supplement to
the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder of Registrable Notes and each Participating Broker-
Dealer agrees by its acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
actual receipt of any notice from the Issuer of the happening of any event of
the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof,
such Holder will forthwith discontinue disposition of such Registrable Notes
covered by such Registration Statement or Prospectus or Exchange Notes to be
sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contem-
<PAGE> 21
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plated by Section 5(k) hereof, or until it is advised in writing (the
"Advice") by the Issuer that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements thereto. In
the event that the Issuer shall give any such notice, the Applicable Period
shall be extended by the number of days during such periods from and including
the date of the giving of such notice to and including the date when each
seller of Registrable Notes covered by such Registration Statement or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof or (y) the Advice.
6. Registration Expenses
All fees and expenses incident to the performance of or compliance with
this Agreement by the Issuer shall be borne by the Issuer whether or not the
Exchange Offer Registration Statement or any Shelf Registration is filed or
becomes effective or the Exchange Offer is consummated, including, without
limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the NASD
in connection with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel in connection with Blue Sky
qualifications of the Registrable Notes or Exchange Notes and determination of
the eligibility of the Registrable Notes or Exchange Notes for investment under
the laws of such jurisdictions (x) where the holders of Registrable Notes are
located, in the case of the Exchange Notes, or (y) as provided in Section 5(h)
hereof, in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer dur ing the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Issuer and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriter or underwriters, if any,
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or in respect of Registrable
Notes or Exchange Notes to be sold by any Participating Broker-Dealer during
the Applicable Period, as the case may be, (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Issuer and
reasonable fees and disbursements of one special counsel for all of the sellers
of Registrable Notes (exclusive of any counsel retained pursuant to Section 7
hereof), (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(m)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) Securities Act liability
insurance, if the Issuer desires such insurance, (vii) fees and expenses of all
other Persons retained by the Issuer, (viii) internal expenses of the Issuer
(including, without limitation, all salaries and expenses of officers and
employees of the Issuer performing legal or accounting duties), (ix) the
expense of any annual audit, (x) any fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
and the obtaining of a rating of the securities, in each case, if applicable,
and (xi) the expenses relating to printing, word processing and distributing
<PAGE> 22
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all Registration Statements, underwriting agreements, indentures and any other
documents necessary in order to comply with this Agreement.
7. Indemnification
(a) The Issuer agrees to indemnify and hold harmless each Holder of
Registrable Notes and each Participating Broker-Dealer selling Exchange Notes
during the Applicable Period, the officers, directors, employees and agents of
each such Person, and each Person, if any, who controls any such Person within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each, a "Participant"), from and against any and all losses,
claims, liabilities, expenses and damages (including, but not limited to, any
and all investigative, legal and other expenses reasonably incurred in
connection with, and any and all amounts paid in settlement of, any action,
suit or proceeding between any of the indemnified parties and any indemnifying
parties or between any indemnified party and any third party, or otherwise, or
any claim asserted), as and when incurred, to which the Initial Purchaser, or
any such person, may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, liabilities, expenses or damages arise out of
or are based on (i) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment
thereto) or Prospectus (as amended or supplemented if the Issuer shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or in any application or other document executed by or on behalf of the Issuer
or based on written information furnished by or on behalf of the Issuer filed
in any jurisdiction in order to qualify the Notes, the Exchange Notes or the
Private Exchange Notes, as the case may be, under the securities laws thereof
or filed with the SEC, (ii) the omission or alleged omission to state in such
document a material fact required to be stated in it or necessary to make the
statements in it not misleading or (iii) any act or failure to act or any
alleged act or failure to act by a Participant in connection with, or relating
in any manner to, the Notes, the Exchange Notes or the Private Exchange Notes
or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, liability, expense or damage arising out of or
based upon matters covered by clause (i) or (ii) above (provided that the
Issuer shall not be liable under this clause (iii) to the extent it is finally
judicially determined by a court of competent jurisdiction that such loss,
claim, liability, expense or damage resulted directly from any such acts or
failures to act undertaken or omitted to be taken by the Participant through
its gross negligence or willful misconduct); provided that the Issuer will not
be liable to the extent that such loss, claim, liability, expense or damage is
based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to the
Participant furnished in writing to the Issuer by such Participant expressly
for inclusion in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary prospectus. This indemnity agreement
will be in addition to any liability that the Issuer might otherwise have.
<PAGE> 23
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(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Issuer, its respective directors, its respective
officers who sign the Registration Statement and each Person who controls the
Issuer within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent (but on a several, and not joint, basis) as
the foregoing indemnity from the Issuer to each Participant, but only with
reference to information relating to such Participant furnished to the Issuer
in writing by such Participant expressly for use in any Registration Statement
or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. This indemnity agreement will be in addition to any liability that
the Participant might otherwise have; provided, however, the liability of any
Participant under this paragraph shall in no event exceed the proceeds received
by such Participant from sales of Registrable Notes or Exchange Notes giving
rise to such obligations.
(c) Any party that proposes to assert the right to be indemnified under
this Section 7 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by
the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its com mencement, the
indemnifying party will be entitled to participate in and, to the extent that
it elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to
the indemnified party for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently incurred by
the indemnified party in connection with the defense. The indemnified party
will have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a
conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
<PAGE> 24
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charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. An indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld). No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 7 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Issuer or a Participant, the
Issuer and such Participant will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Issuer from persons other than such
Participant, such as persons who control the Issuer within the meaning of the
Act, who also may be liable for contribution) to which the Issuer and such
Participant may be subject in such proportion as shall be appropriate to
reflect the relative benefits received by the Issuer on the one hand and the
Participant on the other. The relative benefits received by the Issuer on the
one hand and the Participant on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Issuer bear to the total proceeds received by the
Participant from the sale of Registrable Notes or Exchange Notes, as the case
may be. If, but only if, the allocation provided by the foregoing sentence is
not permitted by applicable law, the allocation of contribution shall be made
in such proportion as is appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault of the
Issuer, on the one hand, and the Participant, on the other, with respect to the
statements or omissions which resulted in such loss, claim, liability, expense
or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Issuer or the Participant,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Issuer
and the Participants agree that it would not be just and equitable if
contributions pursuant to this Section 7(d) were to be determined by pro rata
allocation or by any other method of
<PAGE> 25
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allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 7(d) shall be deemed to include, for
purpose of this Section 7(d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 7(d), no
Participant shall be required to contribute any amount in excess of the amount
by which proceeds received by such Participant from sales of Registrable Notes
or Exchange Notes, as the case be, exceeds the amount of any damages such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission, and no
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7(d), any person who controls a party to this Agreement within the
meaning of the Act will have the same rights to contribution as that party. Any
party entitled to contribution, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought, but the omission so to notify
will not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have under this Section 7(d). Except for a
settlement entered into pursuant to the last sentence of Section 7(c) hereof,
no party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent will not be unreasonably
withheld).
(e) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Issuer contained in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of a Participany or any termination of this
Agreement.
8. Rules 144 and 144A
The Issuer covenants and agrees that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder in a timely manner
in accordance with the requirements of the Securities Act and the Exchange Act
and, if at any time such Issuer is not required to file such reports, such
Issuer will, upon the request of any Holder or beneficial owner of Registrable
Notes, make available such information necessary to permit sales pursuant to
Rule 144A under the Securities Act. The Issuer further covenants and agrees,
for so long as any Registrable Notes remain outstanding that it will take such
further action as any Holder of Registrable Notes may reasonably request, all
to the extent required from time to time to enable such holder to sell
Registrable Notes without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under
the Securities Act, as such
<PAGE> 26
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Rules may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Issuer.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. The Issuer has not, as of the date
hereof, and the Issuer shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Issuer's other issued and outstanding
securities under any such agreements. The Issuer will not enter into any
agreement with respect to any of its securities which will grant to any Person
piggy-back registration rights with respect to any Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Issuer shall not,
directly or indirectly, take any action with respect to the Registrable Notes
as a class that would adversely affect the ability of the Holders of
Registrable Notes to include such Registrable Notes in a registration
undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (I) the Issuer and (II)(A) the Holders of not less than a majority
in aggregate principal amount of the then outstanding Registrable Notes and (B)
in circumstances that would adversely affect the Participating Broker-Dealers,
the Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating
Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may
not be amended, modified or
<PAGE> 27
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supplemented without the prior written consent of each Holder and each
Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement) affected by any
such amendment, modification or supplement. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does
not directly or indirectly affect, impair, limit or compromise the rights of
other Holders of Registrable Notes may be given by Holders of at least a
majority in aggregate principal amount of the Registrable Notes being sold
pursuant to such Registration Statement.
(d) Notices. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of
such Holder or Participating Broker-Dealer, as the case may
be, set forth on the records of the registrar under the
Indenture.
(ii) if to the Issuer, at the address as follows:
Tom's Foods Inc.
900 8th Street
P.O. Box 60
Columbus, Georgia 31902
Facsimile No.: (706) 323-8231
Attention: Chief Executive Officer
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto, the Holders and the Participating Broker-Dealers.
<PAGE> 28
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(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have epecuted the
remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Issuer or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes
is required hereunder, Registrable Notes held by the Issuer or its affiliates
(as such term is defined in Rule 405 under the Securities Act) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) Holders of Registrable Notes and ParticipaThird-Party
Beneficiariesting Broker-Dealers are intended third- party beneficiaries of
this Agreement, and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Indenture, is intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein and any and all
prior oral or written agreements, representations, or warranties, contracts,
understandings, correspondence, conversations and memoranda between the Holders
on the one hand and the Issuer on the other, or between or among any agents,
representa-
<PAGE> 29
-27-
tives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof
are merged herein and replaced hereby.
<PAGE> 30
-28-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TOM'S FOOD'S INC.
By: /s/ S. Albert Gaston
-------------------------------
Name: S. Albert Gaston
Title: Senior Vice President and
Chief Financial Officer
<PAGE> 31
-29-
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PAINEWEBBER INCORPORATED,
as Initial Purchaser
By: /s/ Dana Allen Sands
--------------------------------
Name: Dana Allen Sands
Title: Vice President
<PAGE> 1
Exhibit 10.2
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (SOUTHERN)
AS LENDER
AND
TOM'S FOODS INC.
AS BORROWER
DATED: AS OF OCTOBER 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS................................................. -1-
SECTION 2. CREDIT FACILITIES........................................... -16-
2.1 Revolving Loans............................................... -16-
2.2 Letter of Credit Accommodations............................... -17-
2.3 Availability Reserves......................................... -20-
2.4 Restatement................................................... -21-
SECTION 3. INTEREST AND FEES........................................... -23-
3.1 Interest...................................................... -23-
3.2 Amendment Fee................................................. -24-
3.3 Servicing Fee................................................. -24-
3.4 Unused Line Fee............................................... -24-
3.5 Maximum Interest.............................................. -24-
SECTION 4. CONDITIONS PRECEDENT........................................ -26-
4.1 Conditions Precedent to Effectiveness of
Agreement..................................................... -26-
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations......................................... -29-
SECTION 5. GRANT OF SECURITY INTEREST.................................. -30-
5.1 Collateral.................................................... -30-
5.2 Release of Certain Collateral................................. -31-
SECTION 6. COLLECTION AND ADMINISTRATION............................... -32-
6.1 Borrower's Loan Account....................................... -32-
6.2 Statements.................................................... -32-
6.3 Collection of Accounts........................................ -32-
6.4 Payments...................................................... -34-
6.5 Authorization to Make Loans................................... -35-
6.6 Use of Proceeds............................................... -36-
SECTION 7. COLLATERAL REPORTING AND COVENANTS.......................... -36-
7.1 Collateral Reporting.......................................... -36-
7.2 Accounts Covenants............................................ -37-
7.3 Inventory Covenants........................................... -39-
7.4 Equipment Covenants........................................... -40-
7.5 Power of Attorney............................................. -40-
7.6 Right to Cure................................................. -41-
7.7 Access to Premises............................................ -41-
7.8 Purchases of Farm Products.................................... -42-
SECTION 8. REPRESENTATIONS AND WARRANTIES.............................. -43-
8.1 Corporate Existence, Power and Authority;
Subsidiaries.................................................. -43-
8.2 Financial Statements; No Material Adverse
Effect........................................................ -43-
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.3 Chief Executive Office; Collateral Locations................ -44-
8.4 Priority of Liens; Title to Properties...................... -44-
8.5 Tax Returns................................................. -44-
8.6 Litigation.................................................. -44-
8.7 Compliance with Other Agreements and Applicable
Laws........................................................ -45-
8.8 Environmental Compliance.................................... -45-
8.9 Employee Benefits........................................... -46-
8.10 Accuracy and Completeness of Information.................... -47-
8.11 Survival of Warranties; Cumulative.......................... -47-
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................ -47-
9.1 Maintenance of Existence.................................... -47-
9.2 New Collateral Locations.................................... -48-
9.3 Compliance with Laws, Regulations, Etc...................... -48-
9.4 Payment of Taxes and Claims................................. -50-
9.5 Insurance................................................... -50-
9.6 Financial Statements and Other Information.................. -51-
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc............................................ -52-
9.8 Encumbrances................................................ -53-
9.9 Indebtedness................................................ -55-
9.10 Loans, Investments, Guarantees, Etc......................... -57-
9.11 Dividends and Redemptions................................... -59-
9.12 Transactions with Affiliates................................ -60-
9.13 Working Capital............................................. -60-
9.14 Tangible Net Worth.......................................... -60-
9.15 Compliance with ERISA....................................... -61-
9.16 Costs and Expenses.......................................... -61-
9.17 Further Assurances.......................................... -62-
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................ -62-
10.1 Events of Default........................................... -62-
10.2 Remedies.................................................... -64-
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW............................... -66-
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver.................................. -66-
11.2 Waiver of Notices........................................... -68-
11.3 Amendments and Waivers...................................... -68-
11.4 Waiver of Counterclaims..................................... -68-
11.5 Indemnification............................................. -68-
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.......................... -69-
12.1 Term........................................................ -69-
12.2 Notices..................................................... -70-
12.3 Partial Invalidity.......................................... -70-
12.4 Successors.................................................. -71-
12.5 Confidentiality............................................. -71-
12.6 Entire Agreement............................................ -72-
</TABLE>
(ii)
<PAGE> 4
INDEX TO
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Information Certificate
Exhibit B Borrowing Base Certificate
Exhibit C Eligible Inventory Locations
Exhibit D Form of Distributor Agreement
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Disclosure
</TABLE>
<PAGE> 5
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement dated as of October
14, 1997 is entered into by and between Congress Financial Corporation
(Southern), a Georgia corporation ("Lender") and Tom's Foods Inc., a Delaware
corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower and Lender have previously entered into certain
financing arrangements pursuant to a certain Loan and Security Agreement, dated
August 30, 1996, as amended (the "Existing Loan Agreement");
WHEREAS, Borrower and Lender wish to amend and restate the Existing Loan
Agreement on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural. All references to
Borrower and Lender pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of Default
shall exist or continue or be continuing until such Event of Default is waived
in accordance with Section 11.3 or cured in a manner satisfactory to Lender, as
determined in good faith. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP. For purposes of this Agreement,
the following terms shall have the respective meanings given to them below:
<PAGE> 6
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Affiliate" shall mean with respect to any Person, (a) any other
Person which, directly or indirectly, controls, is controlled by or is under
common control with, such Person; (b) any other Person which beneficially owns
or holds, directly or indirectly, ten (10%) percent or more of any class of
voting stock of such Person; or (c) any other Person, ten (10%) percent or more
of any class of the voting stock (or if such Person is not a corporation, ten
(10%) percent or more of the equity interest) of which is beneficially owned or
held, directly or indirectly, by such Person. The term "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used herein, means the possession, directly or indirectly, of the
power in any form to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise.
1.3 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations
which would otherwise be available to Borrower under the lending formula(s)
provided for herein: (a) to reflect events, conditions, contingencies or risks
which, as determined by Lender in good faith, do or may affect either (i) the
Collateral or any other property which is security for the Obligations or its
value, (ii) the assets or business of Borrower or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's
good faith belief that any Borrowing Base Certificate, collateral report or
financial information furnished by or on behalf of Borrower or any Obligor to
Lender is or may have been incomplete, inaccurate or misleading in any material
respect or (c) to reflect outstanding Letter of Credit Accommodations as
provided in Section 2.2 hereof, or (d) in respect of the matters set forth in
Sections 2.3(b) or 2.3(c) hereof or as provided elsewhere in this Agreement, or
(e) in respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.
1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5 "Borrowing Base Certificate" shall mean a certificate substantially in
the form of Exhibit B hereto, as such form may from time to time be modified by
Lender, which is duly completed
-2-
<PAGE> 7
and executed by Borrower and delivered to Lender from time to
time in accordance with the terms hereof.
1.6 "Change in Control or Ownership" shall mean (i) the failure of the
Heisley Group, at any time, to have beneficial and record ownership of and
power to vote at least 24% of the outstanding shares of voting stock of TFCC,
or (ii) the failure of the Heisley Group, at any time, to have beneficial and
record ownership of and power to vote at least 55% of the outstanding shares of
voting stock of TFH, or (iii) the failure of TFH and the Heisley Group, at any
time, to have beneficial and record ownership of and power to vote at least 80%
of the outstanding shares of capital stock of Borrower, or (iv) the failure of
TFCC, TFH and the Heisley Group, at any time, to own beneficially and of record
and have the power to vote, collectively, 100% of the outstanding capital stock
of Borrower, or (v) the failure of Michael E. Heisley and his immediate family
and entities wholly owned and controlled by Michael E. Heisley and his
immediate family, at any time, to have beneficial and record ownership of and
power to vote at least 100% of the outstanding shares of voting stock of Heico
Holding, or (vi) the failure of Heico Holding, at any time, to have the right
(or the failure by Heico Holding to exercise the right) to designate at least a
majority of the Boards of Directors of TFH and TFCC or (vii) the failure of at
least the majority of the members of the Board of Directors of Borrower, at any
time, to be comprised of the same persons appointed by Heico Holding to be
members of the Board of Directors of TFH and/or other persons designated by
Heico Holding or Michael E. Heisley, or (viii) the applicability to TFH or
Borrower, at any time, of any requirement that any action by the Board of
Directors of TFH or Borrower shall require a greater affirmative vote than that
of the number of directors designated by the Heisley Group, or shall require a
consent by any stockholder(s) of TFH, except for such matters requiring consent
of certain stockholders of TFH as shall be acceptable to Lender.
1.7 "Class A Preferred Stock" shall mean Borrower's Exchangeable
Preferred Stock, $.01 par value per share, Class A, having the terms, rights
and preferences as in effect on the date hereof.
1.8 "Class B Preferred Stock" shall mean Borrower's Preferred Stock, $.01
par value per share, Class B, having the terms, rights and preferences as in
effect on the date hereof.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
-3-
<PAGE> 8
1.10 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.11 "Direct Remittance Event" shall have the meaning set forth in Section
6.3(a) hereof.
1.12 "Distributor/Franchisee Receivables" shall mean, individually and
collectively, the Distributor Notes and the Franchisee Notes, together with any
property or guarantees at any time securing the respective Distributor Notes
and Franchise Notes.
1.13 "Distributor Notes" shall mean all present and future promissory
notes and other instruments and agreements now or hereafter evidencing or
relating to obligations owed to Borrower by its distributors, including,
without limitation, obligations owed for purchases by such distributors from
Borrower of vehicles, equipment, distributorship rights, vending machines, and
parts, equipment and services relating to vending machines, and obligations
relating thereto, and obligations owed by distributors for the purchase of
snack foods.
1.14 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender in good faith based on the criteria
set forth below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and delivery
of packaged snack food products and performance of contract manufacturing
services for other snack food manufacturers by Borrower in the ordinary course
of its business, which transactions are completed in accordance with the terms
and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than sixty (60) days past their
original due date and are not more than ninety (90) days past their original
invoice date;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to such
Accounts is located in the United States of
America, or, with Lender's consent, either: (i) the account debtor has
delivered to Borrower an irrevocable letter of credit issued or confirmed by a
bank satisfactory to Lender, sufficient to cover such Account, in form and
substance satisfactory to
-4-
<PAGE> 9
Lender and, if required by Lender, the original of such letter of credit has
been delivered to Lender or Lender's agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except as to bill and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form
and substance reasonably satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions (including, without limitation, the supplying of raw materials,
packaging or supplies in connection with contract manufacturing by Borrower)
which may give rise to, any right of setoff against such Accounts (but the
portion of the Accounts of such account debtor in excess of the amount at any
time and from time to time owed by Borrower to such account debtor or claimed
owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and perfected
security interest of Lender and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer of the account debtor with
respect to such Accounts is an Affiliate or an officer, employee or agent of an
Affiliate;
(k) the account debtors with respect to such Accounts are not any foreign
government, the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, unless, if the account debtor is
the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, upon Lender's request, the
Federal Assignment of Claims Act of 1940, as amended
-5-
<PAGE> 10
or any similar State or local law, if applicable, has been complied with in a
manner satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or pending
against the account debtors with respect to such Accounts which, if adversely
determined, could reasonably be expected to result in any material adverse
change in any such account debtor's financial condition;
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than twenty (20%) percent of all otherwise Eligible Accounts
(but the portion of the Accounts not in excess of such percentage may be deemed
Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has Accounts
unpaid more than sixty (60) days past their original due date or more than
ninety (90) days past their original invoice date which constitute more than
fifty (50%) percent of the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total indebtedness to
Borrower does not exceed the credit limit with respect to such account debtors
as determined by Lender from time to time (but the portion of the Accounts not
in excess of such credit limit may still be deemed Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy at all
times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.15 "Eligible Inventory" shall mean Inventory consisting of finished
goods consisting of packaged snack food products held for resale in the
ordinary course of the business of Borrower and raw materials for such finished
goods consisting of commercially saleable quantities of, without limitation,
shelled peanuts, potatoes, sugar, corn, flour, cooking oil and seasonings, each
to the extent acceptable to Lender, based on the criteria set forth below. In
general, Eligible Inventory shall not include (a) work-in-process; (b)
components (other than raw materials that would otherwise constitute Eligible
Inventory) which are not part of finished goods; (c) spare parts for equipment;
(d) packaging and shipping materials; (e) supplies used or consumed in
Borrower's business; (f) Inventory at premises other than those locations set
forth on Exhibit C hereto, as such Exhibit C shall from time to time be
amended or supplemented by Borrower; provided, however, Eligible Inventory
shall not include any Inventory located at those premises described in
Exhibit C that
-6-
<PAGE> 11
are not owned and operated by Borrower unless Lender shall have received an
agreement in writing from the person in possession of such Inventory and/or the
owner or operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises and the
right to remove such Inventory, so as to exercise Lender's rights and remedies
and otherwise deal with the Collateral; (g) Inventory subject to a security
interest or lien in favor of any person other than Lender, except those (if
any) permitted in this Agreement; (h) bill and hold goods; (i) unserviceable,
obsolete or slow moving Inventory; (j) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (k) returned,
damaged and/or defective Inventory; (l) Inventory purchased or sold on
consignment; and (m) shelled peanuts that are not saleable for domestic edible
use pursuant to applicable law and regulations. General criteria for Eligible
Inventory may be established and revised from time to time by Lender in good
faith. Any Inventory which is not Eligible Inventory shall nevertheless be
part of the Collateral.
1.16 "Environmental Laws" shall mean all federal, state, district, local
and foreign laws, rules, regulations, ordinances, and consent decrees relating
to health, safety, hazardous substances, pollution and environmental matters,
as now or at any time hereafter in effect, applicable to Borrower's business
and facilities (whether or not owned by it), including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances,
materials or wastes into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata) or
otherwise relating to the generation, manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes.
1.17 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.18 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to
time be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
-7-
<PAGE> 12
1.19 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.20 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.21 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to:
(a) the lesser of: (i) the amount of the Revolving Loans available to
Borrower as of such time based on the applicable lending formulas multiplied by
the Net Amount of Eligible Accounts and the Value of Eligible Inventory, as
determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder, and (ii) the Maximum Credit,
minus
(b) the sum of: (i) the amount of all then outstanding and unpaid
Obligations, plus (ii) the aggregate amount of all then outstanding and unpaid
trade payables of Borrower which are more than sixty (60) days past their
original due date or more than ninety (90) days past their original invoice
date as of such time.
1.22 "Exchange Notes" shall mean those senior secured notes of the
Borrower issued in exchange for the Senior Notes, which Exchange Notes shall be
substantially identical to the Senior Notes, except for the removal of certain
securities law transfer restrictions.
1.23 "Existing Financing Agreements" shall mean the Existing Loan
Agreement, together with the other Financing Agreements (as defined in the
Existing Loan Agreement) as in effect immediately prior to the effectiveness
hereof.
1.24 "Existing Loan Agreement" shall have the meaning set forth in the
Recitals hereto.
1.25 "Financing Agreements" shall mean, collectively, this Agreement, the
Existing Financing Agreements (other than the Existing Loan Agreement, the Term
Notes, the Mortgages and the TFH Subordination Agreement), and all other notes,
guarantees, security agreements, intercreditor agreements, and all other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Borrower or any Obligor in connection with this Agreement,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
-8-
<PAGE> 13
1.26 "Food Security Act" shall mean the Food Security Act, 7 U.S.C.A.
Section 1631, as the same now exists or may hereafter be amended or
supplemented, together with all regulations now or hereafter promulgated
thereunder.
1.27 "Food Security Act Notices" shall have the meaning set forth in
Section 7.8(b) hereof.
1.28 "Four Week Period" shall mean each of Borrower's thirteen (13) fiscal
periods in each fiscal year, each of which is four (4) weeks in duration,
except for a single five (5) week period in leap years.
1.29 "Franchisee Notes" shall mean all present and future promissory notes
and other instruments and agreements now or hereafter evidencing or relating to
obligations owed to Borrower by its franchisees, including, without limitation,
obligations owed for fees and other amounts in respect of distribution rights
granted to such franchisees by Borrower, and obligations relating thereto, and
obligations owed by franchisees for the purchase of snack foods.
1.30 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except
that, for purposes of Sections 9.13 and 9.14 hereof, GAAP shall be determined
on the basis of such principles in effect on the date hereof and consistent
with those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.31 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including, without limitation any that are or become classified as hazardous
or toxic under any Environmental Law).
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1.32 "Heisley Group" shall mean Heico Holding, Michael E. Heisley and
members of his immediate family and any trusts for the benefit of any of the
foregoing, T.F. Partners L.P. and any entities of which the beneficial and
record ownership and power to vote one hundred (100%) percent of the capital
stock and/or other voting interests is held by any one or more of the
foregoing.
1.33 "Heico Holding" shall mean Heico Holding, Inc., a Delaware
corporation, formerly known as Pettibone Corporation, and its successors and
assigns.
1.34 "Industrial Revenue Bonds" shall mean (i) the $4,200,000 aggregate
principal amount of Industrial Development Revenue Bonds of the Industrial
Development Board of the County of Knox (General Mill, Inc. Project) Series
1979, together with the existing real property and fixtures of Borrower located
in Knoxville, Tennessee securing such Bonds; and (ii) the $5,800,000 aggregate
principal amount of Industrial Development Revenue Bonds of Taylor County,
Florida, together with the existing real property, fixtures and Equipment of
Borrower located in Perry, Florida, securing such Bonds.
1.35 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing information with respect to
Borrower, its business and assets provided by or on behalf of Borrower to
Lender in connection with the preparation of this Agreement and the other
Financing Agreements and the financing arrangements provided for herein.
1.36 "Insolvent" shall mean with respect to any person, that such person
(i) has total liabilities (including contingent liabilities) exceeding the fair
saleable value of its assets or (ii) is generally unable to pay its debts as
the same become due.
1.37 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.38 "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued or opened by Lender for the account of Borrower or any Obligor or (b)
with respect to which Lender has agreed to indemnify the issuer or guaranteed
to the issuer the performance by Borrower of its obligations to such issuer.
1.39 "Loans" shall mean the Revolving Loans.
1.40 "Material Adverse Effect" shall mean any material adverse effect upon
the business, assets or financial condition
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of Borrower, or any material adverse effect upon the Collateral or
Lender's rights or interests in or with respect to the Collateral or Borrower's
ability to pay and perform the Obligations.
1.41 "Maximum Credit" shall mean the amount of $17,000,000.
1.42 "Maximum Interest Rate" shall mean the maximum non-usurious rate of
interest under applicable Federal or State law as in effect from time to time
that may be contracted for, taken, reserved, charged or received in respect of
the indebtedness of Borrower to Lender, or to the extent that at any time such
applicable law may thereafter permit a higher maximum non-usurious rate of
interest, then such higher rate. Notwithstanding any other provision hereof,
the Maximum Interest Rate shall be calculated on a daily basis (computed on the
actual number of days elapsed over a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as the case may be).
1.43 "Mortgages" shall have the meaning set forth in the Existing Loan
Agreement.
1.44 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the
amount thereof and (b) returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.
1.45 "Obligations" shall mean any and all Revolving Loans, Letter of
Credit Accommodations and all other obligations, liabilities and indebtedness
of every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, to the extent arising under this Agreement or the other Financing
Agreements, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute (including, without limitation, the
payment of interest and other amounts which would accrue and become due but for
the commencement of such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.46 "Obligor" shall mean TFCC, TFH and any other guarantor, endorser,
acceptor, surety or other person liable on or with respect to the Obligations
or who is the owner of any
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property which is security for the Obligations, other than Borrower.
1.47 "PACA" shall mean the Perishable Agricultural Commodities Act, 7
U.S.C.A. Section 499A et seq., as the same now exists or may hereafter be
amended or supplemented, together with all regulations now or hereafter
promulgated thereunder.
1.48 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.49 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as
amended), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof.
1.50 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.51 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data to the extent relating to the other
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
1.52 "Registration Rights Agreements" shall mean, collectively, the
Registration Rights Agreement, dated on or about the date hereof, between
Borrower and PaineWebber Incorporated, and the Registration Rights Agreement,
dated on or about the date hereof, between TFH and Borrower, as the same now
exists or may hereafter be amended, modified, supplemented, amended, renewed,
restated or replaced.
1.53 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.54 "Sellers" shall have the meaning set forth in Section 7.8(b) hereof.
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1.55 "Senior Note Agreements" shall mean the Indenture dated on or about
the date hereof between Borrower and the Senior Note Trustee, pursuant to which
the Senior Notes are issued, together with the Senior Notes, and all
instruments and agreements, guaranteeing or granting collateral security for
the Senior Notes, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, exchanged, restated or replaced.
1.56 "Senior Note Intercreditor Agreement" shall mean the Intercreditor
Agreement dated on or about the date hereof between Lender and the Senior Note
Trustee, for itself and on behalf of the present and future holders of Senior
Notes, acknowledged and agreed to by Borrower, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, and also including any notes issued in exchange therefor pursuant to
the terms of the Registration Rights Agreements as in effect on the date
hereof.
1.57 "Senior Notes" shall mean (i) the 10 1/2% Senior Secured Notes of
Borrower due 2004, issued on or about the date hereof by Borrower in the
aggregate original principal amount of $60,000,000, (ii) the Exchange Notes,
and (iii) any additional Senior Notes (up to an aggregate of $10,000,000 in
original principal amount) issued upon conversion of the Class A Preferred
Stock as provided under the rights and preferences in effect for such stock, as
the foregoing now exist or may hereafter be amended, modified, supplemented,
extended, renewed, exchanged, restated or replaced.
1.58 "Senior Note Trustee" shall mean IBJ Schroder Bank & Trust Company, a
New York banking corporation, in its capacities as Trustee and Collateral Agent
for the holders of Senior Notes under the Senior Note Agreements, together with
any successor or replacement trustee, and their respective successors and
assigns.
1.59 "SunTrust" shall mean, STI Credit Corporation, a Nevada corporation,
and its successors and assigns.
1.60 "SunTrust Financing Agreement" shall mean, collectively, the
Agreement dated March 2, 1990, Distributor and Franchisee Financing Agreement,
dated June 7, 1990, as modified by a letter agreement, dated May 21, 1993, a
letter agreement, dated January 21, 1994, a letter agreement dated December 23,
1994, the Amendment to Distributor and Franchisee Financing Agreement, dated
July 25, 1994, and the Amendment to Portfolio Agreement and Financing
Agreement, dated as of August 30, 1996, as amended by the Addendum to Amendment
to Portfolio Agreement and Financing Agreement dated December 13, 1996, each
presently between Borrower and SunTrust.
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1.61 "SunTrust Purchased Receivables" shall mean the
Distributor/Franchisee Receivables heretofore purchased by SunTrust (or its
predecessors) from Borrower pursuant to the SunTrust Financing Agreement.
1.62 "SunTrust Termination Agreement" shall mean the Settlement and
Release Agreement, dated as of September 12, 1997, between Borrower and
SunTrust, together with all agreements, documents and instruments delivered
thereunder or relating thereto.
1.63 "Tangible Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between: (i) the aggregate net book value of all
assets of such Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book values goodwill and other intangible assets and all appropriate
reserves in accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization) and (ii) the
aggregate amount of the indebtedness and other liabilities of such Person and
its subsidiaries (including tax and other proper accruals) plus (b)
indebtedness of such Person and its subsidiaries which is subordinated in right
of payment to the full and indefeasible payment of all of the Obligations on
terms and conditions acceptable to Lender plus (c) unpaid accrued dividends on
preferred stock of Borrower, if any, which have been accrued as a liability in
accordance with GAAP.
1.64 "Term Notes" shall have the meaning set forth in the Existing Loan
Agreement.
1.65 "TFCC" shall mean Tom's Foods Capital Corporation, a Delaware
corporation, and its successors and assigns.
1.66 "TFH" shall mean TFH Corp., a Delaware corporation, and its
successors and assigns.
1.67 "TFH Existing Debt" shall mean all liabilities, indebtedness and
obligations of Borrower and/or any Obligor to TFH, its successors and assigns,
including, without limitation, all such liabilities, indebtedness and
obligations comprised of the Existing Bank Debt and the TFH Subordinated Debt
(as such terms are defined in the Existing Loan Agreement), in each case
outstanding on the date hereof, immediately prior to the effectiveness hereof
and prior to the issuance of the Senior Notes.
1.68 "TFH Intercreditor Agreement" shall mean the Intercreditor and
Subordination Agreement, dated August 30, 1996,
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between TFH and Lender, and acknowledged by Borrower, as amended by Amendment
to Intercreditor Agreement dated as of the date hereof between TFH and Lender,
and acknowledged by Borrower, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.69 "TFH Investor L/C's" shall mean the letters of credit provided by the
shareholders of TFH in the aggregate face amount of $10,000,000, in favor of
Nestle U.K. Limited, as guarantor of the Industrial Revenue Bonds, under which
the beneficiary may draw for amounts paid by the beneficiary, as guarantor of
the Industrial Revenue Bonds, to the holders of the Industrial Revenue Bonds or
the trustee(s) for such holders, together with all extensions, substitutions or
replacements of such letters of credit provided by the TFH or its shareholders
(and not by Borrower).
1.70 "TFH L/C Obligations" shall mean the obligations of Borrower (i) to
reimburse TFH for amounts drawn by the beneficiary under the TFH Investor L/C's
to reimburse such beneficiary, as guarantor of the Industrial Revenue Bonds,
for amounts paid to the holders of the Industrial Revenue Bonds or the
trustee(s) for such holders, and (ii) to pay or reimburse TFH for amounts
payable or paid by TFH to the providers of the TFH Investor L/C's for out of
pocket fees or expenses paid by them to the issuers of the TFH Investor L/C's.
1.71 "TFH Subordination Agreement" shall mean the Subordination
Agreement, dated August 30, 1996, between TFH and Lender, and acknowledged by
Borrower.
1.72 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.73 "Working Capital" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
subsidiaries (if any), the amount equal to the difference between: (a) the
aggregate net book value of all current assets of such Person and its
subsidiaries (as determined in accordance with GAAP), calculating the book
value of inventory for this purpose on a first-in-first-out basis, and (b) all
current liabilities of such Person and its subsidiaries (as determined in
accordance with GAAP), provided, that, as to Borrower, for purposes of Section
9.13, the liabilities of Borrower and its subsidiaries to Lender under this
Agreement shall not be considered current liabilities (whether or not
classified as current liabilities in accordance with GAAP).
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SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of Eligible
Accounts, plus
(ii) the lesser of: (A) fifty (50%) percent of the Value of
Eligible Inventory, or (B) the amount equal to: (1) $7,500,000
minus (2) fifty (50%) percent of the then undrawn amounts of the
outstanding Letter of Credit Accommodations for the purpose of
purchasing Eligible Inventory, less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less than
five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith
that: (A) the dilution with respect to the Accounts for any period (based on
the ratio (expressed as a percentage) of (1) the aggregate amount of reductions
in Accounts other than as a result of payments in cash to (2) the aggregate
amount of total sales) exceeds five (5%) percent or may be reasonably
anticipated to exceed five (5%) percent, or (B) the general creditworthiness of
account debtors has declined or (ii) reduce the lending formula(s) with respect
to Eligible Inventory to the extent that Lender determines that: (A) the number
of days of the turnover of the Inventory for any period has changed in any
material respect or (B) the liquidation value of the Eligible Inventory, or any
category thereof, has decreased, or (C) the nature and quality of the Inventory
has deteriorated. In determining whether to reduce the lending formula(s),
Lender may consider events, conditions, contingencies or risks which are also
considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves. To the extent Lender shall have
established an Availability Reserve which Lender determines is sufficient to
address any particular event, state of facts, contingency or risk in a manner
satisfactory to Lender, then Lender shall not exercise its rights under this
Section 2.1(b) to reduce the lending formula(s) to address the same event,
state of facts, contingency or risk.
(c) Except in Lender's discretion, the aggregate amount of the Loans and
the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit. In
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the event that the outstanding amount of any component of the Loans, or the
aggregate amount of the outstanding Loans and Letter of Credit Accommodations,
exceeds the amount available under the lending formulas, the sublimit set forth
in Section 2.1(d), the sublimits for Letter of Credit Accommodations set forth
in Section 2.2(d), or the Maximum Credit, as applicable, such event shall not
limit, waive or otherwise affect any rights of Lender in that circumstance or
on any future occasions and Borrower shall, upon demand by Lender, which may be
made at any time or from time to time, immediately repay to Lender (except as
otherwise provided below) the entire amount of any such excess(es) for which
payment is demanded. Notwithstanding the foregoing, if the outstanding amount
of any component of the Loans exceeds the amount available under the lending
formula(s) and such excess(es) arise solely as a result of Lender either
establishing Availability Reserves pursuant to Section 2.3 hereof or reducing
the lending formula(s) pursuant to Section 2.1(b) hereof, then Borrower shall,
within seven (7) business days after demand by Lender, repay to Lender the
entire amount of any such excess(es) for which payment is demanded, but Lender
shall have no obligation to make any further Loans or provide further Letter of
Credit Accommodations until such excess(es) have been fully repaid; provided,
that, if any Event of Default, or condition or event, which with notice or
lapse of time or both would constitute an Event of Default, shall exist or have
occurred and be continuing, then such excess(es) shall in any event be payable
immediately on demand.
(d) Except in Lender's sole discretion, the aggregate amount of Revolving
Loans or Letter of Credit Accommodations which Lender may make available to
Borrower based on the lending formulas set forth in this Agreement in respect
of Eligible Inventory consisting of shelled peanuts shall not exceed $750,000,
at any one time outstanding.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein, at
the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender, Borrower and the issuer thereof. Any payments
made by Lender to any issuer thereof and/or related parties in connection with
the Letter of Credit Accommodations shall constitute additional Revolving Loans
to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to one and three-quarters
(1.75%) percent per annum on the daily outstanding balance of the Letter
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of Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month, except that,
unless Borrower shall have furnished Lender with cash collateral pursuant to
Section 2.2(d) hereof, Borrower shall pay to Lender such letter of credit fee,
at Lender's option, without notice, at a rate equal to three and three-quarters
(3.75%) percent per annum on such daily outstanding balance for: (i) the
period from and after the date of termination or non-renewal hereof until
Lender has received full and final payment of all Obligations (notwithstanding
entry of a judgment against Borrower) and (ii) the period from and after the
date of the occurrence of an Event of Default for so long as such Event of
Default is continuing as determined by Lender. After cash collateral has been
furnished by Borrower to Lender with respect to any outstanding Letter of
Credit Accommodations pursuant to Section 2.2(d) hereof, the fee for such
outstanding Letter of Credit Accommodations shall revert prospectively to the
pre-default rate provided for in this Section. Such letter of credit fee shall
be calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed and the obligation of Borrower to pay such fee shall survive the
termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on the
date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit, the
sublimits set forth in Sections 2.1(a)(ii)(B) and 2.1(d) and any Availability
Reserves) are equal to or greater than: (i) if the proposed Letter of Credit
Accommodation is for the purpose of purchasing Eligible Inventory, the sum of
(A) fifty (50%) percent of the cost of such Eligible Inventory, plus (B)
freight, taxes, duty and other amounts which Lender estimates must be paid in
connection with such Inventory upon arrival and for delivery to one of
Borrower's locations for Eligible Inventory listed in Exhibit C hereto within
the United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, the amount of Revolving Loans which might
otherwise be available to Borrower shall be reduced by the applicable amount
set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, (i) the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith, shall not at any time exceed
$6,000,000 and (ii) the amount of all outstanding Letter of Credit
Accommodations for the purpose of purchasing Eligible Inventory and all other
commitments and obligations made or incurred by Lender
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in connection therewith shall not at any time exceed: (A) $7,500,000 minus (B)
the amount of the then outstanding Revolving Loans based on Eligible Inventory
pursuant to Section 2.1(a)(ii) hereof and subject to the sublimit set forth in
Section 2.1(d). At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrower shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with
respect to any Letter of Credit Accommodation, except for any such losses,
claims, damages, liabilities, costs and expenses suffered or incurred by Lender
as a result of its own gross negligence or wilful misconduct as determined
pursuant to a final, non-appealable judgment of a court of competent
jurisdiction. Borrower assumes all risks with respect to the acts or omissions
of the drawer under or beneficiary of any Letter of Credit Accommodation and
for such purposes the drawer or beneficiary shall be deemed Borrower's agent.
Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State
and local taxes, duties and levies relating to any goods subject to any Letter
of Credit Accommodations or any documents, drafts or acceptances thereunder.
Borrower hereby releases and holds Lender harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by Borrower, by any issuer
or correspondent or otherwise with respect to or relating to any Letter of
Credit Accommodation, except for any such acts, waivers, errors, delays or
omissions constituting Lender's own gross negligence or wilful misconduct as
determined pursuant to a final, non-appealable judgment of a court of competent
jurisdiction. The provisions of this Section 2.2(e) shall survive the payment
of Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any
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interpretation made in good faith by Lender, or any other issuer or
correspondent under or in connection with any Letter of Credit Accommodation or
any documents, drafts or acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any instructions of Borrower. Lender
shall have the sole and exclusive right and authority to, and Borrower shall
not: (i) at any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-compliance of
documents, (B) give any instructions as to acceptance or rejection of any
documents or goods or (C) execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders, and (ii) at all times, (A)
grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters
of credit included in the Collateral. Lender may take such actions either in
its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken by
Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed
to have been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender
and to apply in all respects to Borrower.
2.3 Availability Reserves.
(a) All Revolving Loans otherwise available to Borrower pursuant to the
lending formulas and subject to the Maximum Credit and other applicable limits
hereunder shall be subject to Lender's continuing right to establish and revise
Availability Reserves. Lender shall not establish an Availability Reserve with
respect to an event, state of facts, contingency or risk if Lender has reduced
the lending formula(s) hereunder to address the same event, state of facts,
contingency or risk in a manner satisfactory to Lender.
(b) In addition to any other Availability Reserves, Lender shall have the
right from time to time to establish and revise Availability Reserves to cover
amounts owed by Borrower to growers or other sellers or suppliers or their
agents for farm products directly or indirectly purchased by Borrower from such
growers or other sellers or suppliers or their agents, (i) if the
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farm products or any proceeds thereof are or may become subject to a lien,
security interest or statutory trust claim in favor of, or created by, any such
grower or other seller or supplier or their agents, or (ii) if a purported
lien, security interest or statutory trust claim has been asserted by any such
grower or other seller or supplier or their agents, with respect to any farm
products or any Accounts of Borrower, or, as to any such farm products or
Accounts or the proceeds thereof, a security interest in farm products
purchased by Borrower is sought to be preserved under the Food Security Act,
or a claim is asserted or remedy is sought under PACA against Borrower or
Lender by the Secretary of Agriculture or other governmental authority, or
(iii) if Lender determines that Lender and its interests in the Collateral are
not fully and effectively protected against and entitled to priority over, all
potential liens, security interests and statutory trust claims upon farm
products purchased by Borrower directly or indirectly from growers or other
sellers, suppliers or agents involved in the transaction, or upon Accounts or
other proceeds thereof.
(c) In addition to any other Availability Reserves, Lender shall have the
right from time to time to establish and revise Availability Reserves to cover
(i) the projected monthly amount owed by Borrower to SunTrust for collections
of any money or other property received either directly by Borrower or in any
account of Borrower (including any of the Blocked Accounts) that represent
payments by Borrower's distributors and franchisees or other persons of amounts
owed to SunTrust; and (ii) at all times, the greater of the projected monthly
amount or actual amount owed by Borrower to Golden Peanut Company for the
purchase of shelled peanuts by Borrower from Golden Peanut Company.
2.4 Restatement.
(a) All loans and advances to Borrower outstanding under the Existing Loan
Agreement immediately prior to the effectiveness hereof, other than the
principal balances of the Term Loans (as defined in the Existing Loan
Agreement) which are to be repaid in full concurrently herewith, shall be
deemed outstanding Revolving Loans, and such Revolving Loans, together with all
accrued interest, fees, charges and expenses under the Existing Loan Agreement,
shall in all respects be deemed Obligations hereunder and shall be subject to
and governed by the terms hereof and of the other Financing Agreements and,
subject to Section 2.4(d) hereof, shall no longer be subject to or governed by
the Existing Loan Agreement, which is being amended and restated by this
Agreement.
(b) All letters of credit, acceptances, merchandise purchase or other
guarantees issued or opened by Lender under the Existing Loan Agreement or with
respect to which Lender has, pursuant to the Existing Loan Agreement,
indemnified the issuer
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or guaranteed to the issuer the performance by Borrower of its obligations to
such issuer, shall, to the extent the same are outstanding immediately prior to
the effectiveness hereof, be deemed Letter of Credit Accommodations to Borrower
hereunder and shall be subject to and governed by the terms hereof and of the
other Financing Agreements, and, subject to Section 2.4(d) hereof, shall no
longer be subject to or governed by the Existing Loan Agreement, which is being
amended and restated by this Agreement.
(c) Pursuant to the Existing Loan Agreement (and as defined therein),
Lender has previously made "Term Loans" to Borrower in the aggregate original
principal amount of $9,840,000 comprised of the "Initial Term Loans" in the
aggregate original principal amount of $9,000,000, and an "Additional Equipment
Term Loan" in the original principal amount of $840,000. Such Term Loans have
an aggregate outstanding principal balance of $8,336,190.53 as of the date
hereof and such balance shall be repaid, concurrently herewith, out of the
proceeds of the issuance of the Senior Notes, as provided herein. Interest
accrued on such balance shall be charged to the Revolving Loan account of
Borrower as of October 31, 1997.
(d) Notwithstanding the amendment and restatement of the Existing Loan
Agreement pursuant to this Agreement, and except as expressly provided in
Sections 5.2 and 5.3 hereof, nothing contained in this Agreement or any other
Financing Agreements executed and delivered in connection herewith shall
extinguish, impair or limit the liens, security interests, assignments, pledges
and rights of setoff in or with respect to the existing and future property of
Borrower and TFCC granted to or held by Lender pursuant to the Existing
Financing Agreements or the perfection or priority thereof. In addition, no
right or remedy of Lender as against any third party under any of the Existing
Financing Agreements, and no obligation of any Borrower or Obligor to any third
party or to Lender under any Existing Financing Agreement to which a third
party is a signatory, shall be discharged, impaired or otherwise affected by
the amendment and restatement contained in this Agreement or any other
Financing Agreement executed and delivered in connection herewith, and,
accordingly, all Existing Financing Agreements to which a third party is a
signatory shall continue in full force and effect. Such Existing Financing
Agreements to which a third party is a signatory include, without limitation,
all intercreditor agreements, subordination agreements, landlord and mortgagee
waivers, bailee acknowledgment and notification letters, lockbox and blocked
account agreements and insurance endorsements; provided, that the TFH
Subordination Agreement is being terminated contemporaneously with the
effectiveness of this Agreement.
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SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations at the rate of one and three-eighths
(1.375%) percent per annum in excess of the Prime Rate.
(b) Notwithstanding Section 3.1(a), Borrower shall pay to Lender
interest, at Lender's option, without notice, at the rate of three and
three-eighths (3.375%) percent per annum in excess of the Prime Rate on all
non-contingent Obligations, for the period from and after the date of
termination or non-renewal hereof, or the date of the occurrence of an Event of
Default, and for so long as such Event of Default is continuing and until such
time as Lender has received full and final payment of all such Obligations
(notwithstanding entry of any judgment against Borrower). In addition,
Borrower shall pay to Lender interest, at Lender's option, without notice, at
the rate of three and three-eighths (3.375%) percent per annum in excess of the
Prime Rate on the portion of the Revolving Loans at any time outstanding in
excess of the amounts available to Borrower under Section 2 (whether or not
such excess(es), arise or are made with or without Lender's knowledge or
consent and whether made before or after an Event of Default, unless such
excess(es) arises solely as a direct result of Lender establishing an
Availability Reserve or reducing the lending formula(s) in which case the
increased rate shall commence only if and after such excess(es) have not been
repaid after seven (7) business days from the date of notice by Lender that
such excess(es) exist). All interest accruing hereunder on and after the
occurrence of any of the events referred to in Section 3.1(b) shall be payable
ON DEMAND.
(c) Interest shall be payable by Borrower to Lender monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed.
Borrower acknowledges and understands that the calculation of interest on the
basis of the actual days elapsed over the period of a three hundred sixty (360)
day year as opposed to a year of three hundred sixty-five (365) or three
hundred sixty-six (366) days results in a higher effective rate of interest.
The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs.
(d) On the date hereof, the Prime Rate is eight and one-half (8 1/2%)
percent and, therefore, the rate of interest in effect hereunder for Revolving
Loans outstanding on the date of
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this Agreement, expressed in simple interest terms, is nine and seven-eighths
(9 7/8%) percent.
3.2 Amendment Fee. Borrower shall pay to Lender as a facility amendment
fee the amount of $50,000, which shall be fully earned as of and payable on the
date hereof. Such fee and the closing fee paid under the Existing Loan
Agreement shall not be subject to rebate upon any prepayment of the Obligations
except to the extent required by Section 3.5 of this Agreement or applicable
law. Such fees shall compensate Lender for the costs associated with the
origination, structuring, processing, approving and closing of the transactions
contemplated by the Existing Loan Agreement and this Agreement, exclusive of
any expenses for which Borrower has agreed to reimburse Lender pursuant to any
other provision of this Agreement or the other Financing Agreements or pursuant
to the Existing Financing Agreements (such as reasonable attorneys' fees).
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
in an amount equal to $6,500 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as
of and payable in advance commencing on November 1, 1997 and on the first day
of each month thereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
fee equal at a rate equal to one-half of one (0.5%) percent per annum
calculated upon the amount (if any) by which $17,000,000 exceeds the average
daily principal balance of the outstanding Revolving Loans and Letter of Credit
Accommodations during the immediately preceding month (or part thereof) while
this Agreement is in effect (or, in the case of the unused line fee calculation
for the month of October, 1997, outstanding for a portion of such month under
(and as defined in) the Existing Loan Agreement), and for so long thereafter as
any of the non-contingent Obligations or any Letter of Credit Accommodations
are outstanding, which fee shall be payable on the first day of each month in
arrears.
3.5 Maximum Interest.
(a) Notwithstanding anything to the contrary contained in this Agreement
or any of the other Financing Agreements, in no event whatsoever shall the
aggregate of all amounts that are contracted for, charged or received by Lender
pursuant to the terms of this Agreement or any of the other Financing
Agreements and that are deemed interest under applicable law exceed the Maximum
Interest Rate (including, to the extent applicable, the provisions of Section
5197 of the Revised Statutes of the United States of America as amended,
12 U.S.C. Section 85, as amended). No agreements, conditions, provisions or
stipulations contained
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in this Agreement or any of the other Financing Agreements, or any Event of
Default, or the exercise by Lender of the right to accelerate the payment or
the maturity of all or any portion of the Obligations, or the exercise of any
option whatsoever contained in this Agreement or any of the other Financing
Agreements, or the prepayment by Borrower of any of the Obligations, or the
occurrence of any event or contingency whatsoever, shall entitle Lender to
contract for, charge or receive in any event, interest or any charges, amounts,
premiums or fees deemed interest by applicable law in excess of the Maximum
Interest Rate. In no event shall Borrower be obligated to pay interest or such
amounts as may be deemed interest under applicable law in amounts which exceed
the Maximum Interest Rate. All agreements, conditions or stipulations, if any,
which may in any event or contingency whatsoever operate to bind, obligate or
compel Borrower to pay interest or such amounts which are deemed to constitute
interest in amounts which exceed the Maximum Interest Rate shall be without
binding force or effect, at law or in equity, to the extent of the excess of
interest or such amounts which are deemed to constitute interest over such
Maximum Interest Rate.
(b) In the event any Interest is charged or received in excess of the
Maximum Interest Rate ("Excess"), Borrower acknowledges and stipulates that any
such charge or receipt shall be the result of an accident and bona fide error,
and that any Excess received by Lender shall be applied, first, to the payment
of the then outstanding and unpaid principal hereunder; second to the payment
of the other Obligations then outstanding and unpaid; and third, returned to
Borrower, it being the intent of the parties hereto not to enter into a
usurious or otherwise illegal relationship. The right to accelerate the
maturity of any of the Obligations does not include the right to accelerate any
interest that has not otherwise accrued on the date of such acceleration, and
Lender does not intend to collect any unearned interest in the event of any
such acceleration. Borrower recognizes that, with fluctuations in the rates of
interest set forth in Section 3.1 of this Agreement and the Maximum Interest
Rate, such an unintentional result could inadvertently occur. All monies paid
to Lender hereunder or under any of the other Financing Agreements, whether at
maturity or by prepayment, shall be subject to any rebate of unearned interest
as and to the extent required by applicable law.
(c) By the execution of this Agreement, Borrower agrees that (A) the
credit or return of any Excess shall constitute the acceptance by Borrower of
such Excess, and (B) Borrower shall not seek or pursue any other remedy, legal
or equitable, against Lender, based in whole or in part upon
contracting for, charging or receiving any interest or such amounts which are
deemed to constitute interest in excess of the Maximum Interest Rate. For the
purpose of determining whether or
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not any Excess has been contracted for, charged or received by Lender, all
interest at any time contracted for, charged or received from Borrower in
connection with this Agreement or any of the other Financing Agreements shall,
to the extent permitted by applicable law, be amortized, prorated, allocated
and spread during the entire term of this Agreement in accordance with the
amounts outstanding from time to time hereunder and the Maximum Interest Rate
from time to time in effect in order to lawfully charge the maximum amount of
interest permitted under applicable laws.
(d) Borrower and Lender shall, to the maximum extent permitted under
applicable law, (i) characterize any non-principal payment as an expense, fee
or premium rather than as interest and (ii) exclude voluntary prepayments and
the effects thereof.
(e) The provisions of this Section 3.5 shall be deemed to be incorporated
into each of the other Financing Agreements (whether or not any provision of
this Section is referred to therein). Each of the Financing Agreements and
communications relating to any interest owed by Borrower and all figures set
forth therein shall, for the sole purpose of computing the extent of the
Obligations, be automatically recomputed by Borrower, and by any court
considering the same, to give effect to the adjustments or credits required by
this Section.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Effectiveness of Agreement. Each of the
following is a condition precedent to the effectiveness of this Agreement,
including Lender making any Revolving Loans or providing any Letter of Credit
Accommodations hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that concurrently herewith, all of the TFH Existing
Debt, other than the TFH L/C Obligations, shall have been fully paid and
satisfied with proceeds of the Senior Notes or converted to preferred stock of
Borrower having rights, preferences and other terms satisfactory to Lender.
(b) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by TFH of its financing
arrangements with Borrower and the termination and release by TFH of any
security interest, lien or other interest in and to any assets and properties
of Borrower, TFCC and each other Obligor, duly authorized, executed and
delivered by it or each of them, including, but not limited to, (i) UCC
termination statements for all UCC financing
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statements previously filed by it or any of them or their predecessors, as
secured party and Borrower or any Obligor, as debtor and (ii) satisfactions and
discharges of any mortgages, deeds of trust or deeds to secure debt by Borrower
or any Obligor in favor of TFH, in form acceptable for recording in the
appropriate government office;
(c) Lender shall have received (i) copies of the TFH Investor L/C's as in
effect on the date hereof, and (ii) an original agreement and acknowledgment by
each of the account parties in respect of the TFH Investor L/C's and by TFH, in
form and substance satisfactory to Lender addressed to Lender or upon which
Lender is expressly permitted to rely, agreeing, among other things, that such
account parties shall look solely to TFH and do not have, and shall not
acquire, any claim or interest against Borrower or any of its properties by
reason of or in connection with the TFH Investor L/C's or drawings thereunder
or any fees or expenses payable or reimbursable in connection therewith, and,
in the case of TFH, containing a waiver of claims through December 31, 2005,
such agreement and acknowledgment being duly authorized, executed and delivered
by the parties thereto;
(d) Lender shall have received, in form and substance satisfactory to
Lender (i) a Termination Agreement between TFH and Lender, acknowledged by
Borrower, with respect to the TFH Subordination Agreement and (ii)
supplementing the agreement and acknowledgment by TFH delivered under Section
4.1(c), an Amended and Restated Intercreditor and Subordination Agreement
between TFH and Lender, acknowledged by Borrower and TFCC, with respect to the
TFH Intercreditor Agreement, each of the foregoing being duly authorized,
executed and delivered by TFH and Borrower;
(e) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property
which is intended to be security for the Obligations or the liability of any
Obligor in respect thereof, subject only to the security interests and liens
(if any) permitted herein or in the other Financing Agreements;
(f) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
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(g) no material adverse change shall have occurred in the assets or
business of Borrower since the date of Lender's latest field examination and no
change or event shall have occurred which would materially impair the ability
of Borrower or any Obligor to perform its obligations hereunder or under any of
the other Financing Agreements to which it is a party or of Lender to enforce
the Obligations or realize upon the Collateral;
(h) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit,
protect and perfect its security interests in and liens upon the Collateral or
to effectuate the provisions or purposes of this Agreement and the other
Financing Agreements, including, without limitation, acknowledgements by
lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender
access to, and the right to remain on, the premises to exercise its rights and
remedies and otherwise deal with the Collateral;
(i) Lender shall have received, in form and substance satisfactory to
Lender, a pro forma balance sheet of Borrower prepared as of November 1, 1997
reflecting the initial transactions hereunder, the payment and satisfaction or
conversion to preferred stock (as aforesaid) of all of the TFH Existing Debt,
other than the TFH L/C Obligations, the satisfaction and discharge of all
indebtedness to SunTrust, and the conveyance to Borrower by SunTrust of certain
SunTrust Purchased Receivables (as provided in the SunTrust Termination
Agreement), the issuance and sale of the Senior Notes and the receipt and
application of the proceeds thereof in accordance herewith and all related
transactions occurring at or about the initial closing of the amendment and
restatement of the financing arrangements hereunder and all related writeoffs
and adjustments under GAAP in connection with all of the foregoing, accompanied
by a certificate of the chief financial officer of Borrower with respect
thereto;
(j) Lender shall have received, in form and substance satisfactory to
Lender, the SunTrust Termination Agreement, duly executed and delivered by
Borrower and SunTrust, together with instruments of assignment by SunTrust in
favor of Borrower and UCC partial releases and/or termination statements to be
filed with respect to the SunTrust Purchased Receivables being conveyed to
Borrower by SunTrust pursuant to the SunTrust Termination Agreement;
(k) Lender shall have received evidence satisfactory to Lender that the
Senior Note Agreements have been duly executed and delivered by the parties
thereto, the Senior Notes have been
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duly issued, executed and delivered by Borrower, and Lender shall have received
payment from Borrower, out of the proceeds of the issuance and sale of the
Senior Notes, of the aggregate principal balance of the Term Loans outstanding
under the Existing Loan Agreement on the date hereof, immediately prior to the
effectiveness hereof;
(l) Lender shall have received, in form and substance satisfactory to
Lender, the Senior Note Intercreditor Agreement executed and delivered by the
Senior Note Trustee, for itself and on behalf of the present and future holders
of Senior Notes, in favor of Lender, as acknowledged and agreed to by Borrower;
(m) Lender shall have received, in form and substance reasonably
satisfactory to Lender, (i) a written confirmation and acknowledgement by TFCC
of the continued effectiveness of its existing guarantee of payment in favor of
Lender of all Obligations, secured by a first and only security interest in
favor of Lender granted by TFCC in all of its existing and future assets and
(ii) a written confirmation and acknowledgement by TFH of the continued
effectiveness of its existing guarantee of payment in favor of Lender of all
Obligations;
(n) Lender shall have received evidence of continued effectiveness of
insurance and loss payee endorsements required hereunder and under the other
Financing Agreements, in form and substance satisfactory to Lender, and
certificates of insurance policies and/or endorsements naming Lender as loss
payee and additional insured;
(o) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower, TFCC and TFH with respect
to this Agreement, the other Financing Agreements, the Senior Note Agreements
and such other matters as Lender may request; and
(p) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender
and/or confirmed and ratified in favor of Lender, in form and substance
satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations
following the amendment and restatement of the financing arrangements
hereunder, and any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct in all material respects with
the same effect as though
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such representations and warranties had been made on and as of the date of the
making of each such Loan or providing each such Letter of Credit Accommodation
and after giving effect thereto (except in the case of any representations and
warranties that are expressly limited by their terms to an earlier date, which
shall be deemed repeated as of such earlier date); and
(b) no Event of Default and no event or condition which, with notice or
passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such
Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
5.1 Collateral. To secure payment and performance of all Obligations,
and confirming its prior grants and assignments of security to Lender with
respect thereto, Borrower hereby grants to Lender a continuing security
interest in, a lien upon, and a right of set off against, and hereby assigns to
Lender as security, the following property and interests in property, whether
now owned or hereafter acquired or existing, and wherever located
(collectively, the "Collateral"):
(a) Accounts;
(b) all present and future contract rights, chattel paper, documents,
instruments, letters of credit, bankers' acceptances and guaranties to the
extent relating to Accounts or other Collateral, all present and future
Distributor/Franchisee Receivables and all present and future general
intangibles for the payment of money (including claims and choses in action) to
the extent relating to Accounts, Inventory or other Collateral;
(c) all present and future monies, securities, credit balances, deposits,
deposit accounts and other property of Borrower now or hereafter held or
received by or in transit to Lender or its affiliates, or, to the extent
relating to Accounts, Inventory or other Collateral, held at or received by or
in transit to any other depository or other institution from or for the account
of Borrower, in each case whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts, Inventory and other Collateral, including, without limitation, (i)
rights and remedies under or relating to guaranties, contracts of suretyship,
letters of credit and credit and other insurance related to Accounts, Inventory
or other Collateral, (ii) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured
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party relating to Account, Inventory or other Collateral, (iii) goods described
in invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts, Inventory or other Collateral, including,
without limitation, returned, repossessed and reclaimed goods, and (iv)
deposits by and property of account debtors or other persons securing the
obligations of account debtors;
(d) Inventory;
(e) all present and future trademarks and tradenames, service marks
(together with the goodwill of the business symbolized thereby), patents,
copyrights and other intellectual property affixed to or appearing on or
relating to any Inventory or the products thereof or other Collateral or
otherwise used in the manufacturing, processing, marketing, preparation for
sale, distribution or sale of Inventory or the products thereof or other
Collateral; provided, that the security interests hereby granted in the
property described in this Section 5.1(e) shall be limited to such right, title
and interest as may be required in order for Lender to exercise its rights and
remedies hereunder with respect to the fulfillment of orders, the manufacturing
and processing of Inventory and the products thereof, and the marketing,
preparation for sale, distribution, sale or other disposition of Inventory and
the products thereof, including the receipt and retention by Lender of the
proceeds thereof;
(f) Records; and
(g) all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing property
described in Sections 5.1(a) through (f), and also including all proceeds of
business interruption insurance and, to the extent relating to Accounts,
Inventory or other Lender Collateral, all other insurance proceeds, whether or
not constituting proceeds of any Collateral.
5.2 Release of Certain Collateral. Concurrently with the effectiveness
hereof, Lender shall execute and deliver, at Borrower's sole expense (i)
appropriate UCC-3 amendments conforming the types of collateral described in
UCC financing statements previously filed by Lender against Borrower to the
Collateral, and (ii) appropriate lien release instruments, in recordable form
for recording in the applicable real estate records, evidencing Lender's
release of its security interests in and liens upon the Equipment of Borrower,
any and all real property interests of Borrower and any and all other items or
types of property of Borrower previously included in the
"Collateral" granted under the Existing Financing Agreements that do not, upon
the effectiveness thereof, constitute part of the Collateral hereunder or under
the other Financing Agreements, in
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each case that are now subject to the "Mortgages" (as defined in and pursuant
to the Existing Loan Agreement) granted by Borrower and related UCC fixture
filings.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrower and (c) all other appropriate debits
and credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s)
shall be made in accordance with Lender's customary practices as in effect from
time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by
Lender for Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within forty-five (45) days after the date such statement
has been mailed by Lender. Until such time as Lender shall have rendered to
Borrower a written statement as provided above, the balance in Borrower's loan
account(s) shall be presumptive evidence of the amounts due and owing to Lender
by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the
Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or
deposited in the Blocked Accounts are the property of Lender, that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to
time on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to such
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bank account of Lender as Lender may from time to time designate for such
purpose ("Payment Account"). Borrower agrees that all payments made to such
Blocked Accounts or other funds received and collected by Lender, whether on
the Accounts or as proceeds of Inventory or other Collateral or otherwise shall
be the property of Lender. Notwithstanding the foregoing, unless and until (i)
Excess Availability at any time hereafter shall fall below $5,000,000
(provided, however, that in determining Excess Availability for this purpose
only, clause (a)(ii) of the definition of Excess Availability shall not apply),
or (ii) an Event of Default or condition or event which, with notice or passage
of time or both, would constitute an Event of Default, then exists or has
occurred and is continuing, or (iii) Borrower shall have failed to deliver
timely a Borrowing Base Certificate in accordance with the provisions hereof,
or (iv) Lender believes in good faith that any information contained in any
Borrowing Base Certificate is incomplete, inaccurate or misleading in any
material respect (each of the foregoing under clauses (i), (ii), (iii) or (iv),
a "Direct Remittance Event"), Lender shall direct the depository bank or banks
maintaining such Blocked Accounts to transfer any deposits or other amounts
transferred to the Blocked Accounts to an operating account of Borrower as
directed by Borrower. After the occurrence of a Direct Remittance Event,
Lender may notify the depository bank or banks maintaining such Blocked
Accounts to remit the funds received into the Blocked Accounts to the Payment
Account of Lender pursuant to the instructions set forth in the Blocked Account
Agreement(s) among Lender, Borrower and the banks at which the Blocked Accounts
are established. Following a Direct Remittance Event, no elimination
of the Direct Remittance Event or other change in circumstance shall require
Lender to direct that amounts in the Blocked Accounts be transferred to an
operating account of Borrower in lieu of the Payment Account.
(b) For purposes of calculating the amount of Revolving Loans available to
Borrower, payments will be applied (conditional upon final collection) to the
Obligations on the business day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's Revolving Loan account on such day, and if not, then on the next
business day. For purposes of calculating interest hereunder, all payments or
other funds received by Lender will be applied (conditional upon final
collection) to the Obligations one (1) business day following the date of
receipt of immediately available funds by Lender in the Payment Account. With
respect to all amounts deposited or transferred to the Blocked Accounts that
are not remitted to the Payment Account (which shall only be in accordance with
Section 6.3(a) hereof), Borrower shall pay Lender a collection fee, on
the first day of each month, in an amount equal to interest at the rate payable
in respect of Revolving Loans hereunder, calculated upon the amounts deposited
in or transferred to the
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Blocked Accounts during the immediately preceding month. Such collection fee
calculated at such rate shall accrue for the period commencing on the business
day such amounts are deposited or transferred to the Blocked Accounts through
the first business day following the business day on which such funds so
deposited or transferred first become immediately available funds. Borrower
shall provide Lender with a weekly report of the daily amounts deposited to and
transferred to the Blocked Accounts, the daily amounts which have become
immediately available funds in the Blocked Accounts, and such other information
as Lender requests to permit the calculation of the collection fee payable
under this Section.
(c) In addition to the Direct Remittance Events referred to in Section
6.3(a) hereof, Lender shall be entitled to declare a Direct Remittance Event
and exercise the rights set forth in Section 6.3 hereof following a Direct
Remittance Event, based on Lender's determination, on a quarterly basis,
whether or not to continue, in Lender's discretion, the provisions of Section
6.3(a) otherwise permitting the funds deposited or transferred to the Blocked
Accounts to be transferred to an operating account of Borrower.
(d) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no
event shall the same be commingled with Borrower's own funds. Borrower agrees
to reimburse Lender on demand for any amounts owed or paid to any bank at which
a Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including, without limitation, the monetary proceeds
of collections or of realization upon any Collateral and expressly including,
without limitation, amounts received in the Payment Account after Lender
exercises its rights under Section 6.3(a) following a Direct Remittance Event)
to such of the Obligations in respect of the Revolving Loans, whether or not
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then due, and to such of the other Obligations then due, in such order and
manner as Lender determines. At Lender's option, all principal, fees, costs,
expenses and other charges provided for in this Agreement or the other
Financing Agreements may be charged directly to the loan account(s) of
Borrower. Without limiting the generality of the foregoing, as an
administrative convenience to Borrower and to ensure the timely payment of
interest owing by Borrower each month hereunder or under any of the other
Financing Agreements, Borrower hereby irrevocably requests and authorizes
Lender, in its discretion, to make a Revolving Loan the proceeds of which shall
be applied to the payment of the interest accrued on the principal amount of
Obligations during the immediately preceding month as and when such interest
becomes due and payable by Borrower to Lender. Borrower shall make all
payments to Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is
required to surrender or return such payment or proceeds to any Person for any
reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify
and hold Lender harmless for the amount of any payments or proceeds surrendered
or returned. This Section 6.4 shall remain effective notwithstanding any
contrary action which may be taken by Lender in reliance upon such payment or
proceeds. This Section 6.4 shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a business day) and the amount of the requested Loan. Requests
received after 11:00 a.m. Atlanta, Georgia time on any day shall be deemed to
have been made as of the opening of business on the immediately following
business day. All Loans and Letter of Credit Accommodations under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrower when deposited to the credit of
Borrower or otherwise disbursed or established in accordance with the
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instructions of Borrower or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. All Loans made or Letter of Credit Accommodations
provided by Lender to Borrower pursuant to the provisions hereof shall be used
by Borrower only for general operating, working capital and other proper
corporate purposes of Borrower not otherwise prohibited by or inconsistent with
the terms hereof. None of the proceeds will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin security or for the
purposes of reducing or retiring any indebtedness which was originally incurred
to purchase or carry any margin security or for any other purpose which might
cause any of the Loans to be considered a "purpose credit" within the meaning
of Regulation G of the Board of Governors of the Federal Reserve System, as
amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts, credits issued and cash received;
(b) on a periodic basis, but no less frequently than once in each Four Week
Period, or more frequently as Lender may reasonably request, (i) perpetual
inventory reports, (ii) inventory reports by category, and (iii) agings of
accounts payable; (c) on a weekly basis (i) a Borrowing Base Certificate
setting forth Borrower's calculation of the Revolving Loans and Letter of
Credit Accommodations available to Borrower pursuant to the terms and
conditions contained herein as of the last day of the preceding week, duly
completed and executed by the chief financial officer or other appropriate
financial officer acceptable to Lender, together with all schedules required
pursuant to the terms of the Borrowing Base Certificate, duly completed and
(ii) prior to Lender's exercise of its rights under Section 6.3(a) following a
Direct Remittance Event, the report on collections referred to in the last
sentence of Section 6.3(b) hereof; (d) upon Lender's request, (i) copies of
customer statements and credit memos, remittance advices and reports, and
copies of deposit slips and bank statements, (ii) copies of shipping and
delivery documents, and (iii) copies of purchase orders, invoices and delivery
documents for Inventory acquired by Borrower; (e) weekly summary agings of
accounts receivable and detail agings of accounts receivable on a monthly basis
or more frequently as Lender may request; and (f) such other reports as to the
Collateral as Lender shall reasonably request from time to time. If any of
Borrower's records or reports of the Collateral are prepared or maintained by
an accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports,
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and related documents to Lender and to follow Lender's instructions with
respect to further services at any time that an Event of Default exists or has
occurred and is continuing. Nothing contained in any Borrowing Base
Certificate shall be deemed to limit, impair or otherwise affect the rights of
Lender contained herein and in the event of any conflict or inconsistency
between the calculation of the Revolving Loans and Letter of Credit
Accommodations available to Borrower as set forth in any Borrowing Base
Certificate and as determined by Lender, the determination of Lender shall
govern and be conclusive and binding upon Borrower. Without limiting the
foregoing, Borrower shall furnish to Lender any information which Lender may
reasonably request regarding the determination and calculation of any of the
amounts set forth in the Borrowing Base Certificate.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material delay in
Borrower's performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor or any disputes with account debtors known to Borrower, or any
settlement, adjustment or compromise thereof, (ii) all material adverse
information known to Borrower relating to the financial condition of any
account debtor and (iii) any event or circumstance which, to Borrower's
knowledge would cause Lender to consider any then existing Accounts as no
longer constituting Eligible Accounts. No credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to any account
debtor without Lender's consent, except in the ordinary course of Borrower's
business in accordance with practices and policies disclosed in writing to
Lender prior to the granting thereof. So long as no Event of Default exists or
has occurred and is continuing, Borrower shall settle, adjust or compromise any
claim, offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing, Lender
shall, at its option, have the exclusive right to settle, adjust or compromise
any claim, offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) Without limiting Borrower's other reporting obligations hereunder,
Borrower shall promptly report to Lender on a separate basis any return by an
account debtor of Inventory having a Value in excess of $15,000. At any time
that Inventory is returned, reclaimed or repossessed, the Account (or portion
thereof) which arose from the sale of such returned, reclaimed or
repossessed Inventory shall not be deemed an Eligible Account. In the event
any account debtor returns Inventory when an Event of Default exists or has
occurred and is continuing, Borrower shall, upon Lender's request, (i) hold the
returned Inventory in
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trust for Lender, (ii) segregate all returned Inventory from all of its other
property, (iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any invoice
delivered to Lender or schedule thereof delivered to Lender shall be true and
complete, (ii) no payments shall be made thereon except payments delivered to
Lender on the date of receipt or remitted to the Blocked Account(s) directly by
the account debtor pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor except as reported to Lender in accordance with
this Agreement and except for credits, discounts, allowances or extensions made
or given in the ordinary course of Borrower's business in accordance with
practices and policies disclosed in writing to Lender prior to the making or
giving thereof, (iv) there shall be no setoffs, deductions, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto except as
periodically reported to Lender in accordance with the terms of this Agreement
and separately reported to Lender if the aggregate amount thereof not yet
reported to Lender at any time exceeds $50,000, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient
under such laws and regulations and all such documentation will be legally
enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's name or
in the name of a nominee of Lender, to verify the validity, amount or any other
matter relating to any Account or other Collateral, by mail, telephone,
facsimile transmission or otherwise.
(e) If an Event of Default exists or has occurred (whether or not
thereafter cured or waived as provided herein) or if, at any time, Borrower
shall have Excess Availability, as determined by Lender, in an amount less than
$1,000,000, Borrower shall, at Lender's request, deliver or cause to be
delivered to Lender, with appropriate endorsement and assignment, with full
recourse to Borrower, all chattel paper and instruments that are included in
the Collateral that Borrower then owns or may at any time thereafter acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree in writing.
(f) Lender may, at any time or times that an Event of Default exists or
has occurred and is continuing, (i) notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make payment of
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Accounts directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Accounts or other obligations included in
the Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its interests. At any time that an Event of Default exists or has occurred
and is continuing, at Lender's request, all invoices and statements sent to any
account debtor shall state that the Accounts and such other obligations have
been assigned to Lender and are payable directly and only to Lender and
Borrower shall deliver to Lender such originals of documents evidencing the
sale and delivery of goods or the performance of services giving rise to any
Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to
Lender, keeping correct and accurate records itemizing and describing the kind,
type, quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after the occurrence and during the
continuance of an Event of Default, and promptly following such physical
inventory shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender concerning such
physical count; (c) Borrower shall not remove any Inventory from the locations
set forth or permitted herein, without the prior written consent of Lender,
except for sales of Inventory in the ordinary course of Borrower's business and
except to move Inventory directly from one location set forth or permitted
herein to another such location; (d) upon Lender's request, Borrower shall, at
Lender's expense at any time or times as Lender may request, but at Borrower's
expense, at any time or times as Lender may request on or after and during the
continuance of an Event of Default, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to Lender,
addressed to Lender or upon which Lender is expressly permitted to rely; (e)
Borrower shall produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including, but not limited
to, the requirements of the Federal
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Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto); (f) Borrower assumes all responsibility and liability
arising from or relating to the production, use, sale or other disposition of
the Inventory; (g) Borrower shall not sell Inventory to any customer on
approval, or any other basis which entitles the customer to return or may
obligate Borrower to repurchase such Inventory; (h) Borrower shall keep the
Inventory in good and marketable condition; and (i) Borrower shall not, without
prior written notice to Lender, acquire or accept any Inventory on consignment
or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) Borrower
shall keep the Equipment, other than obsolete Equipment, in good order, repair,
running and marketable condition (ordinary wear and tear excepted); (b)
Borrower shall use the Equipment with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
all applicable laws; (c) the Equipment is and shall be used in Borrower's
business and not for personal, family, household or farming use; and (d)
Borrower assumes all responsibility and liability arising from the use of the
Equipment, except for actual use of the Equipment by Lender in a grossly
negligent manner, as determined by a final, non-appealable judgment of a court
of competent jurisdiction.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things which are
necessary, in Lender's good faith determination, to fulfill Borrower's
obligations under this Agreement and the other Financing Agreements and (b) at
any time after the occurrence of a Direct Remittance Event to (i)
take control in any manner of any item of payment or proceeds thereof, (ii)
have access to any lockbox or postal box into which Borrower's mail is
deposited, (iii) endorse Borrower's name upon any items of payment or proceeds
thereof and deposit the same in
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the Lender's account for application to the Obligations, (iv) endorse
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Account or any goods pertaining
thereto or any other Collateral, (v) sign Borrower's name on any verification
of Accounts and notices thereof to account debtors and (vi) execute in
Borrower's name and file any UCC financing statements or amendments thereto.
Borrower hereby releases Lender and its officers, employees and designees from
any liabilities arising from any act or acts under this power of attorney and
in furtherance thereof, whether of omission or commission, except as a result
of Lender's own gross negligence or wilful misconduct as determined pursuant to
a final non-appealable judgment of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's good faith judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the
Obligations and charge Borrower's account therefor, such amounts to be
repayable by Borrower ON DEMAND. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event
of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower shall
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and (c) use during normal business hours such
of Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
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7.8 Purchases of Farm Products.
(a) Borrower shall not purchase any farm products unless Borrower acquires
title to such goods free and clear of all security interests and other liens
(except in favor of Lender) and, in particular, free from any statutory or
other grower's or producer's liens or any security interests in favor of any
secured party or lienholder who has taken steps under the Food Security Act or
any other Federal or state statute to preserve its security interest or other
lien rights upon such goods notwithstanding the passage of title directly or
indirectly to Borrower.
(b) Borrower has not within the one (1) year period prior to the date
hereof, received written notice pursuant to the applicable provisions of the
Food Security Act or pursuant to the Uniform Commercial Code or any other
applicable local laws from (i) any of its suppliers or sellers (collectively,
"Sellers") of farm products or (ii) any secured party or secured parties of any
such Sellers of farm products or (iii) the Secretary of State (or equivalent
official) of any State in which farm products purchased by Borrower are grown
or produced, advising or notifying Borrower of a lien or security interest, or
of the intention of a Seller's secured party to maintain a lien or other
security interest in and to any farm products which may be purchased by
Borrower (all of the foregoing, the "Food Security Act Notices").
(c) Borrower has complied with and shall, in all respects, continue to
comply with all existing and future Food Security Act Notices during their
periods of effectiveness under the Food Security Act, including, without
limitation, directions to make payments to the Sellers by issuing payment
instruments directly to the secured party or jointly payable to the Seller and
the Seller's secured party, as specified in the Food Security Act Notice, so as
to terminate or release the security interests in farm products maintained
under the Food Security Act. In addition, with respect to any farm products
purchased by or for resale to Borrower, Borrower shall take all other steps as
may be required, if any, to ensure that all farm products are purchased free
and clear of all security interests, liens and other claims by the Sellers
thereof or their secured parties. Borrower shall notify Lender in writing
within five (5) business days after receipt by Borrower of any such Food
Security Act Notice or amendment to a previous Food Security Act Notice or
amendment or notice.
(d) If, at any time, any jurisdiction where farm products purchased by
Borrower are grown or produced has implemented or implements the provisions of
the Food Security Act with respect to the creation of a "central filing
system", Borrower shall promptly register with the Secretary of State (or
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equivalent official) of each such jurisdiction, pursuant to the registration
requirements of the Food Security Act, and shall promptly notify Lender in
writing of such registration with the central filing system and provide Lender
with copies of any Food Security Act Notices, master lists, supplements thereto
or other materials then or thereafter received from the Secretary of State (or
other official) of the central filing system by Borrower.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of
the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify has not and cannot reasonably be expected to result in a Material
Adverse Effect. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the terms of Borrower's
certificate of incorporation, by-laws, or other organizational documentation,
or any indenture, agreement or undertaking to which Borrower is a party or by
which Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their respective terms. As of the date
hereof, Borrower does not have any subsidiaries except as set forth on the
Information Certificate. As of the date hereof, Borrower is the only
subsidiary of TFH and/or TFCC.
8.2 Financial Statements; No Material Adverse Effect. All financial
statements relating to Borrower which have been or may hereafter be delivered
by Borrower to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Borrower as at
the dates and for the periods set forth therein. Except as disclosed in the
certified financial statements for Borrower's fiscal year ended December 28,
1996, or in any interim financial statements furnished by Borrower to Lender
prior to the date of this Agreement, no event has occurred or condition exists
that has resulted in or could reasonably be expected to result in a Material
Adverse Effect since the date of the most recent audited
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financial statements furnished by Borrower to Lender prior to the date of this
Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies as of the date hereof any of such locations which are not
owned by Borrower and sets forth the owners and/or operators thereof and to the
best of Borrower's knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it. All information in such tax returns, reports and declarations is
complete and accurate in all material respects as of the date of filing.
Borrower has paid or caused to be paid all taxes due and payable or claimed due
and payable in any assessment received by it, except taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books. Adequate provision has been made for the
payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is, as of the date hereof, no present investigation by any governmental
agency pending, or to the best of Borrower's knowledge threatened, against or
affecting Borrower, its assets or business, and there is no action, suit,
proceeding or claim by any Person pending, or to the best of Borrower's
knowledge threatened, against Borrower or its assets or goodwill, or against
or affecting any transactions contemplated by this Agreement, which if
adversely determined
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against Borrower could reasonably be expected to result in a Material Adverse
Effect.
8.7 Compliance with Other Agreements and Applicable Laws. Except as set
forth on the Information Certificate, Borrower is not in default in any
material respect under, or in violation in any material respect of any of the
terms of, any agreement, contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets are bound and Borrower
is in compliance in all material respects with all applicable provisions of
laws, rules, regulations, licenses, permits, approvals and orders of any
foreign, Federal, State or local governmental authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of Borrower comply in all material
respects with all Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law
by Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower has no material liability (contingent or otherwise) in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials;
provided, that, in any event, the liability of Borrower and the aggregate
remediation costs in connection with all matters disclosed on Schedule 8.8
hereto shall not exceed $500,000 in the aggregate.
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(d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in
full force and effect.
(e) Each of subsections (a), (b), (c) and (d) of this Section 8.8 (other
than the proviso to Section 8.8(c)) are subject to an additional exception for
conditions, events or circumstances that, individually or in the aggregate,
have not and cannot reasonably be expected to result in a Material Adverse
Effect.
8.9 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection with which
Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, including any accumulated funding deficiency
described in Section 8.9(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.9(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been or
is expected by Borrower to be incurred with respect to any employee benefit
plan of Borrower or any of its ERISA Affiliates. There has been no reportable
event (within the meaning of Section 4043(b) of ERISA) or any other event or
condition with respect to any employee benefit plan of Borrower or any of its
ERISA Affiliates which presents a risk of termination of any such plan by the
Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any of
its ERISA Affiliates is required under Section 302 of ERISA and Section 412 of
the Code to have paid under the terms of each employee benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof, and no accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether or
not waived, exists with respect to any employee benefit plan, including any
penalty or tax described in Section 8.9(a) hereof and any deficiency with
respect to vested accrued benefits described in Section 8.9(d) hereof.
(d) The current value of all vested accrued benefits under all employee
benefit plans maintained by Borrower that are subject to Title IV of ERISA does
not exceed the current value of the assets of such plans allocable to such
vested accrued benefits, including any penalty or tax described in Section
8.9(a) hereof and any accumulated funding deficiency described in
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Section 8.9(c) hereof. The terms "current value" and "accrued benefit" have
the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever been
obligated to contribute to any "multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10 Accuracy and Completeness of Information. All information furnished
by or on behalf of Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading.
No event or circumstance has occurred or exists which has had or could
reasonably be expected to have a Material Adverse Effect and which has not been
fully and accurately disclosed to Lender in writing.
8.11 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder with the same effect as though made on
such date (except for representations that are expressly limited by their terms
to an earlier date, which shall be deemed repeated as of such earlier date) and
shall be conclusively presumed to have been relied on by Lender regardless of
any investigation made or information possessed by Lender. The representations
and warranties set forth herein shall be cumulative and in addition to any
other representations or warranties which Borrower shall now or hereafter give,
or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender fifteen (15) days prior written notice
of any proposed change in its corporate name, which notice shall set forth the
new name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name
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change certified by the Secretary of State of the jurisdiction of incorporation
of Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location or,
if the new location has and is expected to have Collateral having a fair market
value of no more than $50,000 at any one time, Borrower notifies Lender in
writing of such new location within seven (7) days after opening such new
location and (b) executes and delivers, or causes to be executed and delivered,
to Lender such agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the Collateral at
such location, including, without limitation, UCC financing statements and, if
the new location has or is expected to have Collateral having a fair market
value of more than $50,000 at any one time, additional acknowledgements and
agreements in Lender's favor of the types referred to in Section 4.1(h) hereof
(which additional acknowledgments and agreements shall be an additional
condition of treating any of the Inventory at such location as Eligible
Inventory, regardless of the value the Inventory or other assets at such
location).
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material respects with
all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws, except where failure to so comply
does not and could not reasonably be expected to result in a Material Adverse
Effect.
(b) Borrower shall establish and maintain, at its expense, a system to
assure and monitor its continued compliance with all Environmental Laws in all
of its operations, which system shall include annual reviews of such compliance
by employees or agents of Borrower who are familiar with the requirements of
the Environmental Laws. Copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial investigations shall
be promptly furnished, or caused to be furnished, by Borrower to Lender.
Borrower shall take prompt and appropriate action to respond to any
non-compliance with any of the Environmental Laws and shall regularly report to
Lender on such response.
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(c) Borrower shall give both oral and written notice to Lender as soon as
practicable after Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material or (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other environmental, health or
safety matter which does or could reasonably be expected to result in a
Material Adverse Effect as to Borrower or a material adverse effect on any
properties at which Borrower transported, stored or disposed of any Hazardous
Materials.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any material
non-compliance, with any Environmental Law, Borrower shall, at Lender's request
and Borrower's expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where Borrower's
non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Lender a report
as to such non-compliance setting forth the results of such tests, a proposed
plan for responding to any environmental problems described therein, and an
estimate of the costs thereof and (ii) provide to Lender a supplemental report
of such engineer whenever the scope of such non-compliance, or Borrower's
response thereto or the estimated costs thereof, shall change in any material
respect.
(e) Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including attorneys' fees and legal expenses) directly or indirectly
arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs
of any required or necessary repair, cleanup or other remedial work with
respect to any property of Borrower and the preparation and implementation of
any closure, remedial or other required plans. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
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9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed
on Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay
any income or franchise taxes attributable to the income of Lender from any
amounts charged or paid hereunder to Lender. The foregoing indemnity shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
9.5 Insurance.
(a) Borrower shall, at all times, maintain with financially sound and
reputable insurers insurance with respect to the Collateral against loss or
damage and all other insurance of the kinds and in the amounts customarily
insured against or carried by corporations of established reputation engaged in
the same or similar businesses and similarly situated. Said policies of
insurance shall be satisfactory to Lender as to form, amount and insurer, as
determined by Lender in good faith. Borrower shall furnish certificates,
policies or endorsements to Lender as Lender shall require as proof of such
insurance, and, if Borrower fails to do so, Lender is authorized, but not
required, to obtain such insurance at the expense of Borrower. All policies
insuring against loss or damage to the Collateral and all business interruption
insurance policies shall provide for at least thirty (30) days prior written
notice to Lender of any cancellation or reduction of coverage and that Lender
may act as attorney for Borrower in obtaining, and at any time an Event of
Default exists or has occurred and is continuing, adjusting, settling, amending
and canceling such insurance. Borrower shall cause Lender to be named as a
loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies
in form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates.
(b) At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of
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replacement of Collateral and/or to payment of the Obligations, whether or not
then due, in any order and in such manner as Lender may determine or hold such
proceeds as cash Collateral for the Obligations; provided, however, that if no
Event of Default or event or state of facts, which with notice or passage of
time, or both, would constitute an Event of Default, exists or has occurred and
is continuing and no component of the Revolving Loans exceeds the amount
determined by Lender to be then available under the applicable lending
formula(s) and subject to all applicable sublimits and Availability Reserves,
Lender shall make available to Borrower all insurance proceeds so received by
Lender with respect to Inventory, in each case under arrangements satisfactory
to Lender for the replacement of the Inventory with Inventory having a Value
equal to the Value, prior to the event causing the insured loss, of the
Inventory to which the insurance proceeds relate, and upon which replacement
Inventory, Lender shall have a first priority security interest and lien to
secure the Obligations.
(c) Pending the disposition of any insurance proceeds in accordance
herewith, Lender may hold the same as cash Collateral, or may, at Lender's
option, apply the same to the Revolving Loan account of Borrower and establish
Availability Reserves in the amount so applied. Any amount of such insurance
proceeds not released within sixty (60) days following Lender's receipt thereof
may be applied by Lender to such of the Obligations, whether or not then due,
in such order and manner as Lender shall determine, or, at Lender's option, may
continue to be held as cash Collateral, or maintained as an Availability
Reserve hereunder.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries
(if any) in accordance with GAAP and Borrower shall furnish or cause to be
furnished to Lender: (i) within twenty (20) business days after the end of
each Four Week Period, monthly unaudited consolidated and consolidating
financial statements of Borrower (including balance sheets, statements of
income and loss, statements of cash flow and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its subsidiaries (if any) as of
the end of and through such fiscal month and (ii) within ninety (90) days after
the end of each fiscal year, audited consolidated financial statements of
Borrower and its subsidiaries (if any) (including balance sheets, statements
of income and loss, statements of cash flow and statements of shareholders'
equity), and the accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and the results of the
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operations of Borrower and its subsidiaries (if any), as of the end of and for
such fiscal year, together with the opinion of independent certified public
accountants, which accountants shall be an independent accounting firm selected
by Borrower and reasonably acceptable to Lender, that such financial statements
have been prepared in accordance with GAAP, and present fairly the results of
operations and financial condition of Borrower and its subsidiaries, as of the
end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details of
(i) any loss, damage, investigation, action, suit, proceeding or claim relating
to the Collateral or any other property which is security for the Obligations
having a value in excess of $50,000 or which does, or could reasonably be
expected to, result in any Material Adverse Effect not involving any Collateral
and (ii) the occurrence of any Event of Default or event which, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
(c) Borrower shall promptly after the sending or filing thereof furnish
or cause to be furnished to Lender copies of all reports which Borrower or any
Obligor sends to its stockholders generally and copies of all reports and
registration statements which Borrower or any Obligor files with the Securities
and Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Lender may, from time to time, reasonably
request. Subject to Section 12.5 hereof (as applicable), Lender is hereby
authorized to deliver a copy of any financial statement or any other
information relating to the business of Borrower to any court or other
government agency or to any participant or assignee or prospective participant
or assignee. Borrower hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Lender, at Borrower's expense, copies of
the financial statements of Borrower and any reports or management letters
prepared by such accountants or auditors on behalf of Borrower and to disclose
to Lender such information as they may have regarding the business of Borrower.
Any documents, schedules, invoices or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, without the prior written consent of Lender, directly or indirectly:
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(a) merge into or with or consolidate with any other Person or permit any
other Person to merge into or with or consolidate with it, or
(b) sell, assign, lease, transfer, abandon or otherwise dispose of any
stock or indebtedness to any other Person or any of its assets to any other
Person, except for:
(i) sales of Inventory in the ordinary course of business, and
(ii) the sale of Equipment or real property, after not less
than twenty (20) days prior written notice to Lender (except no
prior notice shall be required as to sale of Equipment or real
property in or at in which no Inventory is being or has been stored
or located within thirty (30) days prior to such sale and having a
fair market value of not more than $750,000 in any transaction or
series of related transactions), so long as (A) the proceeds are
reinvested or otherwise used in the business of Borrower in such
manner and to such extent such that no offer to repurchase any
Senior Notes shall be required to be made by reason thereof or
relating thereto, and (B) arrangements satisfactory to Lender are
made for the relocation of any Inventory stored in the Equipment or
located at real property so sold (including the execution and/or
delivery of further instruments and agreements of the kinds
required under Section 9.2(b), whether or not such Section is
otherwise applicable), or
(c) form or acquire any subsidiaries, or
(d) wind up, liquidate or dissolve, or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except:
(a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which
adequate reserves have been set aside on its books;
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(c) non-consensual statutory liens (other than liens securing the payment
of taxes) arising in the ordinary course of Borrower's business to the extent:
(i) such liens secure indebtedness which is not overdue or
(ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole
cost and expense and at the sole risk of the insurer or being
contested in good faith by appropriate proceedings diligently
pursued and available to Borrower, in each case prior to the
commencement of foreclosure or other similar proceedings and with
respect to which adequate reserves have been set aside on its
books;
(d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
business of Borrower as presently conducted thereon or materially impair the
value of the real property which may be subject thereto;
(e) security interests and liens held by the Senior Note Trustee on assets
of Borrower, other than the Collateral (except for the Collateral described in
Section 5.1(e) hereof and the proceeds thereof), to secure the Senior Notes as
permitted under Section 9.9(d), but only to the extent such security interests
and liens are subject to the terms of the Senior Note Intercreditor Agreement;
(f) liens on the Equipment and real property of Borrower described in the
definition of "Industrial Revenue Bonds" contained herein to secure the
indebtedness described in such definition, and, subject to the TFH
Intercreditor Agreement, to TFH, to the extent TFH becomes the holder of or
otherwise is or becomes entitled to assert any such liens by reason of drawings
made under the TFH Investor L/C's;
(g) rights (if any) of sellers, suppliers or agents involved in the
transaction as a statutory trust beneficiary under PACA in respect of sales of
fresh fruits and fresh vegetables to Borrower in the ordinary course of
business, provided no amounts owed to any such persons are past due,; provided,
that, the inclusion of statutory trust rights in this Section 9.8(g) shall in
no way impair or limit any of Lender's
rights under Section 2.3(b);
(h) purchase money security interests in assets purchased by Borrower from
distributors/franchisees, so long as the indebtedness incurred by Borrower in
any fiscal year that is
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so secured is permitted to be incurred under Section 9.9(g) hereof, and such
security interests do not extend to any property of Borrower other than the
assets and rights so purchased;
(i) purchase money security interests in Equipment (including capital
leases but not operating leases) and purchase money mortgages on real estate
not to exceed $500,000 in the aggregate at any time outstanding, to the extent
the applicable Equipment and/or real estate are acquired other than through
purchases from distributor/franchisees as described in Section 9.8(h) hereof,
and so long as such security interests and mortgages do not apply to any
property of Borrower other than the Equipment or real estate so acquired, and
the indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; and
(j) the security interests and liens set forth on Schedule 8.4 hereto or
in the Information Certificate.
9.9 Indebtedness. Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with respect to which the Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower, and with respect to
which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the extent
not incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement;
(d) indebtedness of Borrower to the holders of Senior Notes and to the
Senior Note Trustee under the Senior Note Agreements, but not to exceed
$60,000,000 in aggregate original principal amount, plus up to an additional
$10,000,000 in aggregate original principal amount evidenced by Senior Notes
issued upon conversion of the Class A Preferred Stock as provided under the
rights and preferences for such stock as in effect on the date hereof;
provided, that with respect to all indebtedness described in this Section
9.9(d), whether arising under or in connection with the Exchange Notes or other
Senior Notes or otherwise:
(i) Borrower shall not, directly or indirectly, make
any payments in respect of such indebtedness, including, but
not limited to, any payments or
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prepayments of principal, interest or other amounts, except as
required under the terms of the Senior Note Agreements as in effect
on the date hereof,
(ii) Borrower shall not, directly or indirectly, (A) amend, modify,
alter or change any terms of such indebtedness or any agreement,
document or instrument related thereto, in any manner adverse to
Borrower or to Lender (as determined by Lender in good faith), or
(B) redeem, retire, defease, or, except as required under the terms
of the Senior Note Agreements as in effect on the date hereof,
purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose (the
immediately preceding exception under clause (B) for purchases or
acquisition of such indebtedness not to constitute a consent by
Lender under, or other modification of any provisions of, or any of
Lender's rights under, Sections 9.7(b) or 10.1(j) hereof), and
(iii) Borrower shall furnish to Lender all notices, demands or
other materials concerning such indebtedness either received by
Borrower or on its behalf, promptly after receipt thereof, or sent
by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be;
(e) contingent reimbursement obligations to TFH in respect of the TFH L/C
Obligations, subordinated in favor of Lender to the extent provided in the TFH
Intercreditor Agreement;
(f) indebtedness of Borrower secured by purchase money security interests
(including capital leases) or purchase money mortgages permitted by Section
9.8(i) hereof (subject to the limitation on the amount of such indebtedness so
secured as provided in such Section) and further subject to the proviso to
Section 9.9(g);
(g) contingent indebtedness of Borrower incurred in connection with the
potentially required repurchase by Borrower of franchise and distributorship
rights and related assets pursuant to the exercise by distributors/franchisees
of their rights requiring Borrower to effect such repurchase pursuant to the
terms of Distributor Agreements in substantially the form annexed hereto as
Exhibit D, entered into between Borrower and its distributors/franchisees, and
non-contingent indebtedness of Borrower, not to exceed $2,000,000 in the
aggregate incurred by Borrower in any fiscal year in respect of such required
repurchases and/or other purchases by Borrower of assets and/or
distributorship/franchise rights from Borrower's distributors/franchisees or
others engaged in similar lines of business; provided, that, with respect to
such indebtedness
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described in Sections 9.9(f) or (g) hereof, (A) Borrower may only make
regularly scheduled payments of principal and interest in respect of such
indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date of
issuance thereof, together with voluntary prepayments of principal in respect
of such indebtedness in the aggregate amount of up to $500,000 in the aggregate
in any consecutive twelve (12) month period, (B) Borrower shall not, directly
or indirectly, (I) amend, modify, alter or change the terms of such
indebtedness or any agreement, document or instrument related thereto as in
effect on the date of issuance thereof, or (II) redeem, retire, defease,
purchase or otherwise acquire such indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (C) Borrower shall furnish to
Lender all notices or demands in connection with such indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as
the case may be;
(h) indebtedness of Borrower (if any) existing by reason of the
classification of the Class A Preferred Stock as debt under GAAP; provided,
however that the only payments, dividends or other distributions that may be
made on or with respect to the Class A Preferred Stock shall be those (if any)
otherwise permitted under Section 9.11 hereof; and
(i) obligations or indebtedness of Borrower set forth on the Information
Certificate; provided, that, with respect to such indebtedness in this clause
(i), (A) Borrower may only make regularly scheduled payments of principal and
interest in respect of such indebtedness in accordance with the terms of the
agreement or instrument evidencing or giving rise to such indebtedness as in
effect on the date hereof, (B) Borrower shall not, directly or indirectly, (I)
amend, modify, alter or change the terms of such indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (II)
redeem, retire, defease, purchase or otherwise acquire such indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose, and (C)
Borrower shall furnish to Lender all notices or demands in connection with such
indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the stock or indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the
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indebtedness, performance, obligations or dividends of any Person or agree to
do any of the foregoing, except: (a) the endorsement of instruments for
collection or deposit in the ordinary course of business; (b) investments in:
(i) short-term direct obligations of the United States Government, (ii)
negotiable certificates of deposit issued by any bank satisfactory to Lender,
payable to the order of the Borrower or to bearer and delivered to Lender, and
(iii) commercial paper rated A1 or P1; provided, that, as to any of the
foregoing, unless waived in writing by Lender, Borrower shall take such actions
as are deemed necessary by Lender to perfect the security interest of Lender in
such investments, (c) voluntary payments in the ordinary course of business in
accordance with past practices made by Borrower to SunTrust on behalf of
Borrower's distributors and franchisees in respect of defaulted obligations of
such distributors and franchisees owed to SunTrust arising under SunTrust
Purchased Receivables or under loans or other financing arrangements provided
by SunTrust to Borrower's distributors and franchisees; provided, that, no
Event of Default, and no condition or event which, with notice or lapse of
time, or both, would constitute an Event of Default, shall exist or have
occurred and be continuing; (d) voluntary purchases or repurchases by Borrower
in the ordinary course of business in accordance with past practices of
SunTrust Purchased Receivables or of loans or advances owed by Borrower's
distributors and franchisees to SunTrust arising in connection with financing
arrangements provided by SunTrust directly to such distributors and
franchisees; provided, that, no Event of Default, and no condition or event
which, with notice or lapse of time or both would constitute an Event of
Default, shall exist or have occurred and be continuing; (e) mandatory
repurchases of SunTrust Purchased Receivables to the extent required under the
SunTrust Financing Agreement as in effect on the date hereof, or as amended
with Lender's prior written consent, (f) loans and advances by Borrower to
officers and employees made after the date hereof in a manner consistent with
the most recent past practices of Borrower, provided, that, (i) no Event of
Default or condition or event which, with notice or passage of time, or both,
would constitute an Event of Default shall exist or have occurred and be
continuing, (ii) in no event shall the total amount of such loans and advances
outstanding in any one time exceed $200,000 and (iii) in no event shall any
such loans or advances outstanding to any one officer or employee at any one
time exceed $25,000; (g) loans, investments and guarantees, not otherwise
permitted under this Section 9.10, that do not exceed, in the aggregate, the
sum of $250,000 made at any time after the date hereof, provided that no Event
of Default or condition or event which, with notice or passage of time, or
both, would constitute an Event of Default, shall exist or have
occurred and be continuing; (h) acquisitions by Borrower, in the ordinary
course of business in accordance with past practices and in accordance with
applicable law, of assets of distributors and franchisees who have defaulted
in their obligations to Borrower;
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provided, that, such acquisitions are engaged in primarily for the purposes of
recovering the unpaid obligations owed to Borrower through restructuring and
remarketing such acquired assets; provided, further, that, at the time of
acquisition, no Event of Default or condition or event which, with notice or
passage of time, or both, would constitute an Event of Default, shall exist or
have occurred and be continuing; (i) the guarantees, loans, advances and
investments set forth in the Information Certificate; provided, that, (i)
Borrower shall not, directly or indirectly, (A) amend, modify, alter or change
the terms of such guarantees as in effect on the date hereof, or (B) redeem,
retire, defease, purchase or otherwise acquire the obligations arising pursuant
to such guarantees, or set aside or otherwise deposit or invest any sums for
such purpose, and (ii) Borrower shall furnish to Lender all notices or demands
in connection with such guarantee or other indebtedness subject to such
guarantee either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make
any other distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing, except that Borrower may, out
of legally available funds therefor, and provided, that no Event of Default,
and no event that would, with notice or passage of time, or both, constitute an
Event of Default, exists or has occurred and is continuing at the time of
issuance under clause (i) below or payment under clause (ii) below or would
arise as a result thereof,
(i) pay stock dividends in the form of additional shares of
its Class A Preferred Stock or Class B Preferred Stock to the
holders of shares of such Preferred Stock or increase the
liquidation preference of such Preferred Stock, in each case in
lieu of cash dividends as permitted by the existing terms, rights
and preferences of such Preferred Stock as in effect on the date
hereof, and
(ii) on not less than twenty (20) days' prior written notice
to Lender, pay cash dividends on each of (x) the shares of its
Class A Preferred Stock, outstanding on the date hereof, (y) the
shares of its
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Class B Preferred Stock, outstanding as of the date hereof, and (z)
additional shares of such Class A Preferred Stock and Class B
Preferred Stock issued as stock dividends as permitted under clause
(i), in each case limited to an amount equal to 10.5% or 9.5% per
annum upon the liquidation preference of each such share of Class A
Preferred Stock and Class B Preferred Stock, respectively, upon
which such cash dividend is payable;
provided, further, that each such dividend under clauses (i) and (ii) would be
permitted to be issued or paid (as the case may be) under the terms of the
Senior Note Agreements as in effect on the date hereof (and without regard to
any waiver or modification of any such terms that may otherwise exist or be
obtained and whether or not the Senior Notes Agreements remain in effect for
such or any other purpose).
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other Affiliate of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms no less
favorable to the Borrower than Borrower would obtain in a comparable arm's
length transaction with a person who is not an Affiliate or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other Affiliate of Borrower, except reasonable compensation to
officers, employees and directors for services rendered to Borrower in the
ordinary course of business. Borrower shall not enter into any transaction for
the purchase, sale or exchange of property or the rendering of any service to
or by any Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with a person who is not an Affiliate, and
(iii) Borrower may pay management fees to Michael E. Heisley and Thomas C.
Mattick in the amount not to exceed $300,000 in the aggregate in any fiscal
year; provided, that, at the time of each payment of any such management fee,
no Event of Default or condition or event which, with notice or passage of
time, or both, would constitute an Event of Default, shall exist or have
occurred and be continuing.
9.13 Working Capital. Borrower shall, at all times, maintain Working
Capital of not less than $6,000,000.
9.14 Tangible Net Worth. Borrower shall, at all times, maintain Tangible
Net Worth of not less than $17,000,000.
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9.15 Compliance with ERISA. Borrower shall not with respect to any
"employee benefit plans" maintained by Borrower or any of its ERISA Affiliates:
(a) (i) terminate any of such employee benefit plans so as to incur any
liability in excess of $250,000 to the Pension Benefit Guaranty Corporation
established pursuant to ERISA, (ii) allow or suffer to exist any prohibited
transaction involving any of such employee benefit plans or any trust created
thereunder which would subject Borrower or such ERISA Affiliate to a tax or
penalty or other liability on prohibited transactions imposed under Section
4975 of the Code or ERISA, (iii) fail to pay to any such employee benefit plan
any contribution which it is obligated to pay under Section 302 of ERISA,
Section 412 of the Code or the terms of such plan, (iv) allow or suffer to
exist any accumulated funding deficiency, whether or not waived, with respect
to any such employee benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee benefit plan that is a single employer plan, which termination could
result in any liability to the Pension Benefit Guaranty Corporation or (vi)
incur any withdrawal liability with respect to any multiemployer pension plan.
(b) As used in this Section 9.15, the term "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand all
out-of-pocket costs, expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, Lender's rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including, but not limited to: (a) all costs and expenses of filing
or recording (including Uniform Commercial Code financing statement filing
taxes and fees, documentary taxes, intangibles taxes and mortgage recording
taxes and fees, if applicable); (b) costs, expenses and fees for appraisals and
searches; (c) costs and expenses of remitting loan proceeds, collecting checks
and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f)
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costs and expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Lender, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this Agreement and the other Financing Agreements or defending any claims
made or threatened against Lender arising out of the transactions contemplated
hereby and thereby (including, without limitation, preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $600 per person per day for
Lender's examiners in the field and office; and (h) the reasonable fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
9.17 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary
or proper to evidence, perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of Borrower representing that all conditions precedent to the
making of Loans and providing Letter of Credit Accommodations contained herein
are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans or provide any further Letter of
Credit Accommodations until Lender has received such certificate and, in
addition, Lender has determined that such conditions are satisfied. Where
permitted by law, Borrower hereby authorizes Lender to execute and file one or
more UCC financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations after the same
becomes due and payable or (ii) Borrower or any Obligor fails to perform any of
the terms, covenants, conditions or provisions contained in this Agreement or
any of the other Financing Agreements other than as described in Section
10.1(a)(i) and such failure shall continue for fifteen (15) days;
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provided, that, such fifteen (15) day period shall not apply in the case of:
(A) any failure to observe any such term, covenant, condition or provision
which is not capable of being cured at all or within such fifteen (15) day
period or which has been the subject of a prior failure within a six (6) month
period or (B) an intentional breach by Borrower or any Obligor of any such
term, covenant, condition or provision, or (C) the failure to observe or
perform any of the covenants or provisions contained in Section 6.3, 7.1, 7.2,
7.3, 7.4, 7.7, 7.8, 9.1, 9.2, 9.5, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 or
9.14 of this Agreement or any covenants or agreements covering substantially
the same matter as such sections in any of the other Financing Agreements; or
(b) any representation, warranty or statement of fact made by Borrower to
Lender in this Agreement, the other Financing Agreements or any other
agreement, schedule, confirmatory assignment or otherwise shall when made or
deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the terms,
covenants, conditions or provisions of any guarantee, endorsement or other
agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against Borrower or
any Obligor in excess of $250,000 in any one case or in excess of $500,000 in
the aggregate and shall remain unbonded, undischarged or unvacated for a period
in excess of thirty (30) days or execution shall at any time not be effectively
stayed, or any judgment other than for the payment of money, or injunction,
attachment, garnishment or execution is rendered against Borrower or any
Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes Insolvent, makes an assignment for
the benefit of creditors or makes or sends notice of a bulk transfer;
(g) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction now or hereafter in effect (whether at law or in
equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not
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contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by Borrower or any Obligor or for all or any part of its property;
(i) any default by Borrower or any Obligor under any agreement, document
or instrument relating to any indebtedness for borrowed money owing to any
person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any
case in an amount in excess of $250,000, which default continues for more than
the applicable cure period, if any, with respect thereto, or any default by
Borrower or any Obligor under any material contract, lease, license or other
obligation to any person other than Lender, which default continues for more
than the applicable cure period, if any, with respect thereto;
(j) any Change in Control or Ownership occurs or any "Change of Control"
(as defined in the Senior Note Agreements occurs;
(k) the indictment or threatened indictment of Borrower or any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets or
prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other Financing
Agreements which continues after the applicable cure period, if any.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and
other applicable law,
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all of which rights and remedies may be exercised without notice to or consent
by Borrower or any Obligor, except as such notice or consent is expressly
provided for hereunder or required by applicable law. All rights, remedies and
powers granted to Lender hereunder, under any of the other Financing
Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
principal balance of the Obligations and all interest accrued thereon without
prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (A) accelerate the payment of the principal balance of the
Obligations and all interest accrued thereon and demand immediate payment
thereof to Lender (provided, that, upon the occurrence of any Event of Default
described in Sections 10.1(g) and 10.1(h), the principal balance of the
Obligations and all interest accrued thereon shall automatically become
immediately due and payable), (B) with or without judicial process or the aid
or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(C) require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender, (D) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, (E) remove any or all of the Collateral from any
premises on or in which the same may be located for the purpose of effecting
the sale, foreclosure or other disposition thereof or for any other purpose,
(F) sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with respect
thereto, public or private sales at any exchange, broker's board, at any office
of Lender or elsewhere) at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with the Lender having the right
to purchase the whole or any part of the Collateral at any such public sale,
all of the foregoing being free from any right or equity of redemption of
Borrower, which right or equity of redemption is hereby expressly waived and
released by Borrower and/or (G) terminate this Agreement. If any of the
Collateral is sold or leased by Lender upon credit terms or for future
delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, five (5)
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days prior notice by Lender to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable
notice thereof and Borrower waives any other notice. In the event Lender
institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrower waives the posting of any
bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received by
Lender from any sale, lease, foreclosure or other disposition of the Collateral
to payment of the Obligations, in whole or in part and in such order as Lender
may elect, whether or not then due. Borrower shall remain liable to Lender for
the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of
this Agreement providing for any future Loans or Letter of Credit
Accommodations to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of Georgia (without giving
effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Superior Court of Fulton County, Georgia and
the United States District Court for the Northern District of Georgia and waive
any objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the
dealings of the parties hereto in respect of this Agreement or any of the other
Financing
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Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction which Lender deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) Borrower hereby waives personal service of any and all process upon
it and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth on the signature
pages hereof and service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails, or, at Lender's
option, by service upon Borrower in any other manner provided under the rules
of any such courts. Within thirty (30) days after such service, Borrower shall
appear in answer to such process, failing which Borrower shall be deemed in
default and judgment may be entered by Lender against Borrower for the amount
of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT
OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment binding on Lender, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct. In any
such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
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11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on Borrower which Lender may elect to give
shall entitle Borrower to any other or further notice or demand in the same,
similar or other circumstances. Without limiting the generality of the
foregoing, Borrower waives (i) notice prior to Lender's taking possession or
control of any of the Collateral or any bond or security which might be
required by any court prior to allowing Lender to exercise any of Lender's
remedies, including the issuance of an immediate writ of possession and (ii)
the benefit of all valuation, appraisement and exemption laws.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Lender of any right, power and/or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court
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costs, and the fees and expenses of counsel. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may
be unenforceable because it violates any law or public policy, Borrower shall
pay the maximum portion which it is permitted to pay under applicable law to
Lender in satisfaction of indemnified matters under this Section. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from
August 30, 1996 (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Lender or Borrower may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received
final and indefeasible payment. Such payments in respect of the obligations
and cash collateral shall be remitted by wire transfer in Federal funds to such
bank account of Lender, as Lender may, in its discretion, designate in writing
to Borrower for such purpose. Interest shall be due until and including the
next business day, if the amounts so paid by Borrower to the bank account
designated by Lender are received in such bank account later than 12:00 noon,
Atlanta, Georgia time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge Borrower of its respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and
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applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end of
the then current term of this Agreement, in view of the impracticality and
extreme difficulty of ascertaining actual damages and by mutual agreement of
the parties as to a reasonable calculation of Lender's lost profits as a result
thereof, Borrower agrees to pay to Lender, upon the effective date of such
termination, an early termination fee in the amount set forth below if such
termination is effective in the period indicated:
<TABLE>
Amount Period
------ ------
<S> <C> <C>
(i) 2% of Maximum Credit the date hereof to and including August 29, 1998
(ii) 1% of Maximum Credit August 30, 1998 to and including August 29, 1999
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be deemed included in
the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next business day, one (1) business day after sending; and if by certified
mail, return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
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<PAGE> 75
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep confidential, in
accordance with its customary procedures for handling confidential information
and safe and sound lending practices, any non-public information supplied to it
by Borrower pursuant to this Agreement which is clearly and conspicuously
marked as confidential at the time such information is furnished by Borrower to
Lender, provided, that, nothing contained herein shall limit the disclosure of
any such information: (i) to the extent required by statute, rule, regulation,
subpoena or court order, (ii) to bank examiners and other regulators, auditors
and/or accountants, (iii) in connection with any litigation to which Lender is
a party, (iv) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant (or prospective assignee
or participant) shall have first agreed in writing to treat such information as
confidential in accordance with this Section 12.5, or (v) to counsel for Lender
or any participant or assignee (or prospective participant or assignee).
(b) In no event shall this Section 12.5 or any other provision of this
Agreement or applicable law be deemed: (i) to apply to or restrict disclosure
of information that has been or is made public by Borrower or any third party
without breach of this Section 12.5 or otherwise become generally available to
the public other than as a result of a disclosure in violation hereof, (ii) to
apply to or restrict disclosure of information that was or becomes available to
Lender on a non-confidential basis from a person other than Borrower, (iii)
require Lender to return any materials furnished by Borrower to Lender or (iv)
prevent Lender from responding to routine informational requests in accordance
with the Code of Ethics for the Exchange of Credit Information promulgated by
The Robert Morris Associates or other
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applicable industry standards relating to the exchange of credit information.
The obligations of Lender under this Section 12.5 shall supersede and replace
the obligations of Lender under any confidentiality letter signed prior to the
date hereof.
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered
or to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
LENDER
- - ------
CONGRESS FINANCIAL BORROWER
CORPORATION (SOUTHERN) --------
By: /s/ Charles McDaniel TOM'S FOODS INC.
-------------------------
Title: Senior Vice President By: /s/ S. Albert Gaston
---------------------- -------------------------
Title: Senior Vice President
----------------------
Address: Chief Executive Office:
- - -------- -----------------------
200 Galleria Parkway 900 Eighth Street
Suite 1500 Columbus, Georgia 31902
Atlanta, Georgia 30339
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<PAGE> 1
Exhibit 10.3
GUARANTEE
August 30, 1996
Congress Financial Corporation (Southern)
1000 Parkwood Circle
Atlanta, Georgia 30339
Re: Tom's Foods Inc. ("Borrower")
Gentlemen:
Congress Financial Corporation (Southern) ("Lender") and Borrower have
entered into certain financing arrangements pursuant to which Lender may make
loans and advances and provide other financial accommodations to Borrower as
set forth in the Loan and Security Agreement, dated of even date herewith, by
and between Borrower and Lender (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement"), and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including, but not limited to, this Guarantee (all of the
foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the "Financing Agreements").
Due to the close business and financial relationships between Borrower
and the undersigned ("Guarantor"), in consideration of the benefits which will
accrue to Guarantor and as an inducement for and in consideration of Lender
making loans and advances and providing other financial accommodations to
Borrower pursuant to the Loan Agreement and the other Financing Agreements,
Guarantor hereby agrees in favor of Lender as follows:
1. Guarantee.
(a) Guarantor absolutely and unconditionally guarantees and agrees to
be liable for the full and indefeasible payment and performance when due of the
following (all of which are collectively referred to herein as the "Guaranteed
Obligations"): (i) all obligations, liabilities and indebtedness of any kind,
nature and description of Borrower to Lender and/or its affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, to the extent
arising under the Loan Agreement or the other Financing Agreements, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Loan Agreement or after the commencement of
any case with respect
<PAGE> 2
to Borrower under the United States Bankruptcy Code or any similar statute
(including, without limitation, the payment of interest and other amounts,
which would accrue and become due but for the commencement of such case and
including loans, interest, fees, charges and expenses related thereto and all
other obligations of Borrower or its successors to Lender arising after the
commencement of such case), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, and however acquired by Lender and (ii) all
out-of-pocket expenses (including, without limitation reasonable attorneys'
fees and legal expenses) incurred by Lender in connection with the preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of Borrower's obligations, liabilities and indebtedness
as aforesaid to Lender, the rights of Lender in any collateral or under this
Guarantee and all other Financing Agreements or in any way involving claims by
or against Lender directly or indirectly arising out of or related to the
relationships between Borrower, Guarantor or any other Obligor (as hereinafter
defined) and Lender, whether such expenses are incurred before, during or after
the initial or any renewal term of the Loan Agreement and the other Financing
Agreements or after the commencement of any case with respect to Borrower or
Guarantor under the United States Bankruptcy Code or any similar statute.
(b) This Guarantee is a guaranty of payment and not of collection.
Guarantor agrees that Lender need not attempt to collect any Guaranteed
Obligations from Borrower, Guarantor or any other Obligor or to realize upon
any collateral, but may require Guarantor to make immediate payment of all of
the Guaranteed Obligations to Lender when due, whether by maturity,
acceleration or otherwise, or at any time thereafter. Lender may apply any
amounts received in respect of the Guaranteed Obligations to any of the
Guaranteed Obligations, in whole or in part (including attorneys' fees and
legal expenses incurred by Lender with respect thereto or otherwise chargeable
to Borrower or Guarantor) and in such order as Lender may elect.
(c) Payment by Guarantor shall be made to Lender at the office of
Lender from time to time on demand as Guaranteed Obligations become due.
Guarantor shall make all payments to Lender on the Guaranteed Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. One or more
successive or concurrent actions may be brought hereon against Guarantor either
in the same action in which Borrower or any other Obligor is sued or in
separate actions. In the event any claim or action, or action on any judgment,
based on this Guarantee is brought against Guarantor,
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<PAGE> 3
Guarantor agrees not to deduct, set-off, or seek any counterclaim for or recoup
any amounts which are or may be owed by Lender to Guarantor.
2. Waivers and Consents.
(a) Notice of acceptance of this Guarantee, the making of loans and
advances and providing other financial accommodations to Borrower and
presentment, demand, protest, notice of protest, notice of nonpayment or
default and all other notices to which Borrower or Guarantor is entitled are
hereby waived by Guarantor. Guarantor also waives notice of and hereby consents
to, (i) any amendment, modification, supplement, extension, renewal, or
restatement of the Loan Agreement and any of the other Financing Agreements,
including, without limitation, extensions of time of payment of or increase or
decrease in the amount of any of the Guaranteed Obligations or any collateral,
and the guarantee made herein shall apply to the Loan Agreement and the other
Financing Agreements and the Guaranteed Obligations as so amended, modified,
supplemented, renewed, restated or extended, increased or decreased, (ii) the
taking, exchange, surrender and releasing of collateral or guarantees now or at
any time held by or available to Lender for the obligations of Borrower or any
other party at any time liable on or in respect of the Guaranteed Obligations
or who is the owner of any property which is security for the Guaranteed
Obligations (individually, an "Obligor" and collectively, the "Obligors"),
(iii) the exercise of, or refraining from the exercise of any rights against
Borrower or any other Obligor or any collateral, (iv) the settlement,
compromise or release of, or the waiver of any default with respect to, any of
the Guaranteed Obligations and (v) any financing by Lender of Borrower under
Section 364 of the United States Bankruptcy Code or consent to the use of cash
collateral by Lender under Section 363 of the United States Bankruptcy Code.
Guarantor agrees that the amount of the Guaranteed Obligations shall not be
diminished and the liability of Guarantor hereunder shall not be otherwise
impaired or affected by any of the foregoing.
(b) No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations shall affect, impair or be a defense to this
Guarantee, nor shall any other circumstance which might otherwise constitute a
defense available to or legal or equitable discharge of Borrower in respect of
any of the Guaranteed Obligations, or Guarantor in respect of this Guarantee,
affect, impair or be a defense to this Guarantee. Without limitation of the
foregoing, the liability of Guarantor hereunder shall not be discharged or
impaired in any respect by reason of any failure by Lender to perfect or
continue perfection of any lien or security interest in any collateral or any
delay by Lender in perfecting any such lien or security interest. As
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<PAGE> 4
to interest, fees and expenses, whether arising before or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, Guarantor shall be liable therefor,
even if Borrower's liability for such amounts does not, or ceases to, exist by
operation of law.
(c) Guarantor hereby irrevocably and unconditionally waives and
relinquishes all statutory, contractual, common law, equitable and all other
claims against Borrower, any collateral for the Guaranteed Obligations or other
assets of Borrower or any other Obligor, for subrogation, reimbursement,
exoneration, contribution, indemnification, setoff or other recourse in respect
to sums paid or payable to Lender by Guarantor hereunder and Guarantor hereby
further irrevocably and unconditionally waives and relinquishes any and all
other benefits which Guarantor might otherwise directly or indirectly receive
or be entitled to receive by reason of any amounts paid by or collected or due
from Guarantor, Borrower or any other Obligor upon the Guaranteed Obligations
or realized from their property.
3. Subordination. Payment of all amounts now or hereafter owed to
Guarantor by Borrower or any other Obligor is hereby subordinated in right of
payment to the indefeasible payment in full to Lender of the Guaranteed
Obligations and all such amounts and any security and guarantees therefor are
hereby assigned to Lender as security for the Guaranteed Obligations.
4. Acceleration. Notwithstanding anything to the contrary contained
herein or any of the terms of any of the other Financing Agreements, the
liability of Guarantor for the entire Guaranteed Obligations shall mature and
become immediately due and payable, even if the liability of Borrower or any
other Obligor therefor does not, upon the occurrence of any act, condition or
event which constitutes an Event of Default as such term is defined in the Loan
Agreement.
5. Account Stated. The books and records of Lender showing the account
between Lender and Borrower shall be admissible in, evidence in any action or
proceeding against or involving Guarantor as prima facie proof of the items
therein set forth, and the monthly statements of Lender rendered to Borrower,
to the extent to which no written objection is made within thirty (30) days
from the date of sending thereof to Borrower, shall be deemed conclusively
correct and constitute an account stated between Lender and Borrower and be
binding on Guarantor.
6. Termination. This Guarantee is continuing, unlimited, absolute and
unconditional. All Guaranteed Obligations shall be conclusively presumed to
have been created in reliance on this Guarantee. Guarantor shall continue to be
liable hereunder until one of Lender's officers actually receives a written
termination
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<PAGE> 5
notice from Guarantor sent to Lender at is address set forth above by certified
mail, return receipt requested and thereafter as set forth below. Revocation or
termination hereof by Guarantor shall not affect, in any manner, the rights of
Lender or any obligations or duties of Guarantor under this Guarantee with
respect to (a) Guaranteed Obligations which have been created, contracted,
assumed or incurred prior to the receipt by Lender of such written notice of
revocation or termination as provided herein, including, without limitation,
(i) all amendments, extensions, renewals and modifications of such Guaranteed
Obligations (whether or not evidenced by new or additional agreements,
documents or instruments executed on or after such notice of revocation or
termination), (ii) all interest, fees and similar charges accruing or due on
and after revocation or termination, and (iii) all reasonable attorneys' fees
and legal expenses, costs and other expenses paid or incurred on or after such
notice of revocation or termination in attempting to collect or enforce any of
the Guaranteed Obligations against Borrower, Guarantor or any other Obligor
(whether or not suit be brought), or (b) Guaranteed Obligations which have been
created, contracted, assumed or incurred after the receipt by Lender of such
written notice of revocation or termination as provided herein pursuant to any
contract entered into by Lender prior to receipt of such notice. The sole
effect of such revocation or termination by Guarantor shall be to exclude from
this Guarantee the liability of Guarantor for those Guaranteed Obligations
arising after the date of receipt by Lender of such written notice which are
unrelated to Guaranteed Obligations arising or transactions entered into prior
to such date. Without limiting the foregoing, this Guarantee may not be
terminated and shall continue so long as the Loan Agreement shall be in effect
(whether during its original term or any renewal, substitution or extension
thereof).
7. Reinstatement. If after receipt of any payment of, or proceeds of
collateral applied to the payment of, any of the Guaranteed Obligations, Lender
is required to surrender or return such payment or proceeds to any Person for
any reason, then the Guaranteed Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this Guarantee shall
continue in full force and effect as if such payment or proceeds had not been
received by Lender. Guarantor shall be liable to pay to Lender, and does
indemnify and hold Lender harmless for the amount of any payments or proceeds
surrendered or returned. This Section 7 shall remain effective notwithstanding
any contrary action which may be taken by Lender in reliance upon such payment
or proceeds. This Section 7 shall survive the termination or revocation of this
Guarantee.
8. Amendments and Waivers. Neither this Guarantee nor any provision hereof
shall be amended, modified, waived or discharged
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<PAGE> 6
orally or by course of conduct, but only by a written agreement signed by an
authorized officer of Lender. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its rights,
powers and/or remedies unless such waiver shall in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or waiver
of any such right, power and/or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
9. Corporate Existence, Power and Authority. Guarantor is a corporation
duly organized and in good standing under the laws of its state or other
jurisdiction of incorporation and is duly qualified as a foreign corporation
and in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the financial condition,
results of operation or businesses of Guarantor or the rights of Lender
hereunder or under any of the other Financing Agreements. The execution,
delivery and performance of this Guarantee is within the corporate powers of
Guarantor, have been duly authorized and is not in contravention of law or the
terms of the certificates of incorporation, by-laws, or other organizational
documentation of Guarantor, or any indenture, agreement or undertaking to which
Guarantor is a party or by which Guarantor or its property are bound. This
Guarantee constitutes the legal, valid and binding obligation of Guarantor
enforceable in accordance with its terms.
10. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Guarantee
and any dispute arising out of the relationship between Guarantor and Lender,
whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of Georgia (without giving effect to principles of
conflicts of law).
(b) Guarantor hereby irrevocably consents and submits to the
non-exclusive jurisdiction of the Superior Court of Fulton County, Georgia and
the United States District Court for the Northern District of Georgia and
waives any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Guarantee or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of Guarantor and Lender in respect of this Guarantee or any of the
other Financing
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<PAGE> 7
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising and whether in contract, tort, equity or
otherwise, and agrees that any dispute arising out of the relationship between
Guarantor or Borrower and Lender or the conduct of any such persons in
connection with this Guarantee, the other Financing Agreements or otherwise
shall be heard only in the courts described above (except that Lender shall
have the right to bring any action or proceeding against Guarantor or its
property in the courts of any other jurisdiction which Lender deems necessary
or appropriate in order to realize on any collateral at any time granted by
Borrower or Guarantor to Lender or to otherwise enforce its rights against
Guarantor or its property).
(c) Guarantor hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Guarantor in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Guarantor shall appear in answer to such process, failing which Guarantor shall
be deemed in default and judgment may be entered by Lender against Guarantor
for the amount of the claim and other relief requested.
(d) GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS GUARANTEE OR ANY OF
THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF GUARANTOR AND LENDER IN RESPECT OF THIS GUARANTEE
OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. GUARANTOR HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT GUARANTOR OR LENDER MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF GUARANTOR AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(e) Lender shall not have any liability to Guarantor (whether in
tort, contract, equity or otherwise) for losses suffered by Guarantor in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Guarantee, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
nonappealable judgment or court order binding on Lender that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender
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<PAGE> 8
shall be entitled to the benefit of the rebuttable presumption that it acted in
good faith and with the exercise of ordinary care in the performance by it of
the terms of the Loan Agreement and the other Financing Agreements.
11. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth above and to Guarantor
at its chief excutive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next business day, one (1) business day after sending; and if by certified
mail, return receipt requested, five (5) days after mailing.
12. Partial Invalidity. If any provision of this Guarantee is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
13. Entire Agreement. This Guarantee represents the entire agreement and
understanding of this parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
14. Successors and Assigns. This Guarantee shall be binding upon
Guarantor and its successors and assigns and shall inure to the benefit of
Lender and its sucessors, endorsees, transferees and assigns. The liquidation,
dissolution or termination of Guarantor shall not terminate this Guarantee as
to such entity or as to Guarantor.
15. Construction. All references to the term "Guarantor" wherever used
herein shall mean Guarantor and its successors and assigns (including, without
limitation, any receiver, trustee or custodian for Guarantor or any of its
assets or Guarantor in its capacity as debtor or debtor-in-possession under the
United States Bankruptcy Code). All references to the term "Lender" wherever
used herein shall mean Lender and its successors and assigns and all references
to the term "Borrower" wherever used herein shall mean Borrower and its
successors and assigns
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<PAGE> 9
(including, without limitation, any receiver, trustee or custodian for
Borrower or any of its assets or Borrower in its capacity as debtor or
debtor-in-possession under the United States Bankruptcy Code). All references
to the term "Person" or "person" wherever used herein shall mean any
individual, sole proprietorship, partnership, corporation (including, without
limitation, any corporation which elects subchapter S status under the Internal
Revenue Code of 1986, as amended), business trust, unincorporated association,
joint stock corporation, trust, joint venture or other entity or any government
or any agency or instrumentality or political subdivision thereof. All
references to the plural shall also mean the singular and to the singular shall
also mean the plural.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guarantee as of
the day and year first above written.
ATTEST: TOM'S FOODS CAPITAL CORPORATION
By:
/s/ [Signature] /s/ S. Albert Gaston
- - ---------------------------------- ------------------------------
Title: SVP
[CORPORATE SEAL] ------------------------------
Chief Executive Office
900 Eighth Street
Columbus, Georgia 31902
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<PAGE> 10
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK) )
On this 30 day of August, 1996, before me personally came S. Albert
Gaston, to me known, who stated that he is the Senior Vice President of TOM'S
FOODS CAPITAL CORPORATION the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation.
/s/ Demitra KolioKotas Lynch
-----------------------------
Notary Public
DEMITRA KOLIOKOTAS LYNCH
NOTARY PUBLIC State of New York
No. 01 K05040351
Qualified in Nassau County
Commission Expires March 13, 1997
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<PAGE> 1
Exhibit 10.4
TOM'S FOODS CAPITAL CORPORATION
900 Eighth Street
Columbus, Georgia 31902
October 14, 1997
Congress Financial Corporation
(Southern)
200 Galleria Parkway
Suite 1500
Atlanta, Georgia 30339
Re: Confirmation and Acknowledgement of
Guarantee and General Security Agreement
Gentlemen:
Reference is made to the Loan and Security Agreement, dated as of
August 30, 1996, between Congress Financial Corporation (Southern) ("Lender")
and Tom's Foods Inc. ("Borrower"), pursuant to which Lender and Borrower have
entered into secured financing arrangements (the "Loan Agreement"). Pursuant to
the Loan Agreement, Tom's Foods Capital Corporation ("TFCC") executed and
delivered to Lender (i) a Guarantee, dated as of August 30, 1996, pursuant to
which, among other things, TFCC has absolutely and unconditionally guaranteed
payment and performance of all Obligations of Borrower to Lender (the
"Guarantee") and (ii) a General Security Agreement, dated as of August 30,
1996, pursuant to which, among other things, TFCC granted to Lender a general
security interest in and lien upon all or substantially all of TFCC's present
and future assets and properties (the "General Security Agreement").
Capitalized terms used herein and not otherwise defined herein, shall have the
respective meanings ascribed to such terms in the Loan Agreement.
In connection with the proposed issuance by Borrower of $60,000,000 of
its 10 1/2% Senior Secured Notes due 2004, Borrower and Lender are about to
enter into an Amended and Restated Loan and Security Agreement, dated as of the
date hereof, amending and restating the terms and provisions governing the
financing arrangements between Borrower and Lender (the "Amended Loan
Agreement"). It is a condition precedent to the effectiveness of the Amended
Loan Agreement and any loans and other financial accommodations to Borrower
thereunder, that TFCC execute and deliver to Lender this confirmation and
acknowledgment.
<PAGE> 2
Accordingly, TFCC hereby acknowledges and confirms to Lender that the
Guarantee remains in full force and effect, unmodified, that the term
"Guaranteed Obligations" as used therein shall include all present and future
"Obligations" (as defined in the Amended Loan Agreement) of Borrower to Lender,
and that TFCC is and shall remain liable to Lender pursuant to the Guarantee,
without offset, defense or counterclaim of any kind, nature or description.
TFCC hereby further acknowledges and confirms to Lender that, under the
terms of the General Security Agreement, TFCC has granted to Lender, and, by
way of confirmation, hereby grants to Lender, a continuing general security
interest in and lien upon all of the "Collateral" (as defined in the General
Security Agreement), to secure the payment and performance of all "Obligations"
(as defined in the General Security Agreement), of TFCC to Lender, and that the
General Security Agreement is and shall continue in full force and effect,
unmodified.
TFCC hereby further represents and warrants to Lender that all of the
representations and warranties contained in the Guarantee and General Security
Agreement are true, correct and complete as of the date hereof, except to the
extent, if any, that such representations and warranties specifically relate to
a specified earlier date, in which case such representations and warranties are
true and correct as of such specified earlier date.
This confirmation and acknowledgement shall be binding upon TFCC and
its successors and assigns, and shall inure to the benefit of Lender and its
successors and assigns.
TFCC WAIVES THE RIGHT TO TRIAL BY JURY IN RESPECT OF ANY MATTER ARISING
OUT OF OR IN ANY WAY RELATING TO THE LOAN AGREEMENT, THE GUARANTEE, THE GENERAL
SECURITY AGREEMENT OR THIS CONFIRMATION AND ACKNOWLEDGEMENT.
This confirmation and acknowledgement shall be governed by, and construed
in accordance with, the internal laws of the State of Georgia, without regard
to principles of conflicts of law.
Very truly yours,
TOM'S FOODS CAPITAL CORPORATION
By: /s/ S. Albert Gaston
----------------------------
Title: Senior Vice President
-------------------------
2
<PAGE> 1
Exhibit 10.7
INTERCREDITOR AGREEMENT
This INTERCREDITOR AGREEMENT ("Agreement") is dated as of October 14,
1997, between CONGRESS FINANCIAL CORPORATION (SOUTHERN), a Georgia corporation
("Lender") and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking
corporation, in its capacity as trustee under the Indenture referred to below
and as collateral agent under the General Security Agreement and Mortgages
referred to below (in such capacities, and together with any permitted
successors and assigns in such capacities, the "Senior Note Trustee").
WITNESSETH:
WHEREAS, Tom's Foods Inc., a Delaware corporation ("Borrower") and
Lender have entered or are about to enter into that certain Amended and
Restated Loan and Security Agreement dated on or about the date hereof (such
Amended and Restated Loan and Security Agreement, as amended, modified,
supplemented, renewed, extended, restated or replaced from time to time, the
"Loan Agreement"; together with all documents, agreements, guarantees and other
instruments now or hereafter evidencing or securing all or any portion of the
obligations of Borrower under the Loan Agreement or any other agreements or
documents executed pursuant thereto, as the same may now exist or may hereafter
be amended, modified, supplemented, renewed, extended, restated or replaced
from time to time, collectively, the "Financing Agreements"); and
WHEREAS, pursuant to the Loan Agreement, Borrower has, among other
things, granted to Lender a security interest in and lien upon certain personal
property as more particularly described in Exhibit A annexed hereto
(collectively, the "Lender Collateral"); and
WHEREAS, Borrower and the Senior Note Trustee have entered into that
certain Indenture, dated as of October 14, 1997 (as amended, modified,
supplemented, renewed, extended, exchanged, restated or replaced from time to
time, the "Indenture") pursuant to which Borrower is issuing its 10 1/2% Senior
Secured Notes due 2004 (the "Senior Notes"; together with the Indenture and all
documents, agreements, guarantees and other instruments now or hereafter
evidencing or securing all or any portion of the obligations of Borrower under
the Indenture and the Senior Notes or any other agreements or documents
executed pursuant thereto, as the same may now exist or may hereafter be
amended, modified, supplemented, renewed, extended, restated or replaced from
time to time, the "Senior Note Agreements"); and
WHEREAS, pursuant to that certain General Security Agreement, dated as
of October 14, 1997, Borrower has, among other things, granted to the Senior
Note Trustee, for its benefit
<PAGE> 2
and the ratable benefit of the holders of Senior Notes, a security interest in
and lien upon certain real and personal property as more particularly described
in Exhibit B annexed hereto (collectively, the "Senior Note Collateral"); and
WHEREAS, Borrower has also executed and delivered, in each case in
favor of the Senior Note Trustee, as mortgagee, beneficiary or grantee, for its
benefit and the ratable benefit of the holders of Senior Notes, certain
mortgages, deeds of trust and deeds to secure debt, covering, among other real
property, Borrower's real property located in Columbus, Georgia, Corsicana,
Texas and Fresno, California (collectively, and together with any additional
mortgages, deeds of trust, deeds to secure debt or other instruments now or
hereafter creating or evidencing a lien in favor of the Senior Note Trustee, as
mortgagee, beneficiary or grantee, for its benefit and the ratable benefit of
the holders of Senior Notes, covering any real property now owned or hereafter
acquired by Borrower, in each case, as amended, modified, supplemented,
renewed, extended, restated or replaced from time to time, the "Mortgages");
and
WHEREAS, certain of the Lender Collateral, including, without
limitation, Inventory and Records (each as defined in Exhibit A annexed hereto)
relating thereto, may from time to time be located on the Premises (as defined
in Exhibit B annexed hereto) including any after-acquired real property that
may from time to time be covered by the Mortgages (such real property,
including all improvements and fixtures located thereon, collectively, the
"Mortgaged Premises");
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. ACKNOWLEDGMENT OF LIENS; INTELLECTUAL PROPERTY
1.1 Lender hereby acknowledges that, pursuant to the Senior Note
Agreements, the Senior Note Trustee has been granted (for its benefit and for
the ratable benefit of the holders of the Senior Notes) security interests in
and liens upon all of the Senior Note Collateral, including, without
limitation, the Intellectual Property (as defined in Exhibit B annexed hereto)
and further acknowledges and agrees that Lender has not been granted and will
not acquire any security interests in or liens upon any of the Senior Note
Collateral, other than the Intellectual Property for the limited purposes set
forth in Exhibit A annexed hereto. The Senior Note Trustee hereby acknowledges
that Lender has been granted security interests in and liens upon all of the
Lender Collateral, including, without limitation, the Intellectual Property for
the limited purpose set forth in Exhibit A annexed hereto pursuant to the
Financing Agreements, and further acknowledges and agrees that Lender shall
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<PAGE> 3
have the right, and the Senior Note Trustee hereby recognizes and agrees not to
oppose or disturb Lender's rights to use, without charge, the Intellectual
Property for so long as Lender in good faith deems necessary in order for
Lender to exercise its rights or remedies under the Financing Agreements with
respect to the other Lender Collateral;
1.2 Notwithstanding the order or time of attachment, or the order, time
or manner of perfection, or the order or time of filing or recordation of any
document or instrument, or other method of perfecting a security interest in
favor of the Senior Note Trustee or Lender in the Lender Collateral and/or the
Senior Note Collateral, as the case may be, and notwithstanding any conflicting
terms or conditions contained in any of the Senior Note Agreements or Financing
Agreements:
(a) Lender shall have security interests in and liens upon the
Lender Collateral and the Senior Note Trustee shall in no event have any lien
upon or security interest in or any other rights or claims with respect to all
or any portion thereof, except as specifically provided in Section 1.2(c) of
this Agreement;
(b) the Senior Note Trustee shall have security interests and
liens upon the Senior Note Collateral and Lender shall in no event have any
lien upon or security interest in or any other rights or claims with respect to
all or any portion thereof, except as specifically provided in Section 1.2(c)
and elsewhere in this Agreement;
(c) until all of the obligations, liabilities and indebtedness
of Borrower to the Senior Note Trustee arising under or in connection with the
Senior Note Agreements (the "Senior Note Debt") are paid in full, and except
for Lender's rights under this Agreement with respect to the Intellectual
Property, the security interests and liens granted to the Senior Note Trustee
under the Senior Note Agreements in and upon the Intellectual Property have and
shall have priority over the security interests and liens granted to Lender
under the Financing Agreements in and upon the Intellectual Property, and such
security interests and liens of Lender in and upon the Intellectual Property
are and shall be, in all respects (except for Lender's rights under this
Agreement), subject and subordinate to the security interests and liens of the
Senior Note Trustee in and upon the Intellectual Property; and
(d) the security interests and liens and priorities thereof
provided in this Section 1.2 shall not be altered or otherwise affected by (i)
any amendment, modification, supplement, extension, renewal, restatement,
replacement or refinancing of all or any part of the obligations, liabilities
and indebtedness of Borrower to Lender arising under or in connection with the
Financing Agreement (the "Lender Debt") or
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<PAGE> 4
the Senior Note Debt or (ii) any action or inaction which any of the Senior
Note Trustee or Lender may take or fail to take in respect of the Senior Note
Collateral or Lender Collateral.
1.3 The Senior Note Trustee agrees that it will not contest the
validity, perfection, priority or enforceability of any of the security
interests or liens of Lender upon the Lender Collateral and Lender agrees that
it will not contest the validity, perfection, priority or enforceability of any
of the security interests or liens of the Senior Note Trustee upon the Senior
Note Collateral. As between Lender and the Senior Note Trustee, the terms of
this Agreement shall govern even if part or all of the Senior Note Debt or
Lender Debt or any of the security interests or liens securing payment and
performance thereof are avoided, disallowed, set aside or otherwise invalidated
in any judicial proceeding or otherwise.
1.4 Until such time as the Senior Note Debt is paid and satisfied in
full, Senior Note Trustee shall, subject to Lenders rights under the other
provisions of this Agreement, have the right to manage, perform and enforce the
terms of the Senior Note Agreements with respect to the Intellectual Property,
to exercise and enforce all privileges and rights thereunder according to its
discretion and the exercise of its business judgment, including, without
limitation, the right to hold, prepare for sale, sell, license, lease, dispose
of, or liquidate such intellectual Property. Lender shall not enforce its
security interests in the Intellectual Property in any manner that would
interfere with the security interests of the Senior Note Trustee therein,
including, without limitation, by way of an outright foreclosure sale of the
Intellectual Property itself; provided, however, that Lender shall nevertheless
be entitled to enforce its security interests with respect to the Intellectual
Property to the extent required in order to enable Lender to exercise its
rights or remedies under the Financing Agreements with respect to the other
Lender Collateral, including, without limitation, the fulfillment of orders,
the manufacturing and processing of Inventory and the products thereof, and the
marketing, preparation for sale, distribution, sale or other disposition of
inventory and the products thereof, including the receipt and retention by
Lender of the proceeds of Inventory and the products thereof.
SECTION 2. MORTGAGED PREMISES
2.1 No Claim on Collateral. The Senior Note Trustee hereby waives
pursuant to the Indenture for itself and on behalf of each present and future
holder of Senior Notes, each and every right which the Senior Note Trustee or
any holder of Senior Notes now or at any time hereafter may have under
applicable law, by virtue of the Mortgages or Borrower's or Lender's occupation
of the Mortgaged Premises, to claim or assert any lien, right, claim or title
to any or all of the Lender Collateral comprised of
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<PAGE> 5
tangible personal property located thereon, including, without limitation, any
Inventory or Records to the extent relating thereto, that now or hereafter may
be stored in or located on the Mortgaged Premises or Equipment.
2.2 Use of Mortgaged Premises, Equipment, etc. During the one hundred
eighty (180) day period following receipt by Lender of written notice from the
Senior Note Trustee notifying Lender of the acceleration of the Senior Notes by
reason of an uncured Event of Default under the Senior Notes and the Indenture
(such period, the "Permitted Use Period"):
(a) Lender may enter and remain upon one or more of the
Mortgaged Premises, without obligation to pay rent or other compensation to the
Senior Note Trustee or the holders of Senior Notes (other than expense
reimbursement as provided in clause (iii) below), and may use any Equipment
constituting Senior Note Collateral, for the purposes of manufacturing,
processing, marketing, preparation for sale, distribution and sale of any or
all of the Inventory or other realization upon Lender Collateral; provided,
however, that Lender shall (i) promptly notify the Senior Note Trustee of
Lender's entry upon the Mortgaged Premises, (ii) promptly repair or replace any
Senior Note Collateral destroyed or damaged in any respect by Lender or any of
Lender's employees or agents as a result of such use, (iii) reimburse the
Senior Note Trustee for all reasonable out-of-pocket expenses actually incurred
by the Senior Note Trustee in connection with or arising out of Lender's use of
the Senior Note Collateral, but only such costs and expenses directly
attributable to that portion or portions of the Senior Note Collateral actually
used by Lender pursuant to the rights granted under the provisions of this
Section 2.2(a), and (iv) indemnify and hold Senior Note Trustee harmless from
and against all losses, costs, damages or expenses (including reasonable
attorneys' fees and disbursements) suffered or incurred by Senior Note Trustee
a direct result of claims for personal injury directly caused by the gross
negligence or willful misconduct of Lender or its agents or designees in the
exercise of the rights granted to Lender under this Section 2.2(a); provided
that under no circumstances shall Lender indemnify or be responsible to the
Trustee for lost profits or other special or consequential damages, and (v) pay
the Senior Note Trustee a per diem storage charge for the period (if any) after
the Permitted Use Period (at the then prevailing market rate based upon the
volume of Inventory subject to the security interests and liens of Lender from
time to time thereafter remaining at the Mortgaged Premises) with respect to
any Inventory that remains at the Mortgaged Premises after the expiration of
the Permitted Use Period, unless and until Lender has notified the Senior Note
Trustee in writing that Lender has abandoned or released its security interests
and liens in and upon such remaining Inventory. After Lender has given such
notice to the Senior Note Trustee that Lender has abandoned or released its
security interests and liens in and
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<PAGE> 6
upon such remaining Inventory, Lender shall have no further liability to the
Senior Note Trustee for storage charges, costs and expenses or indemnification,
except for any such liabilities accrued prior to such notice; and
(b) the Senior Note Trustee will cooperate with Lender in
permitting Lender to have access to the Lender Collateral located on the
Mortgaged Premises and will not delay, hinder or impede Lender's access to,
entry upon or use of the Mortgaged Premises or any Equipment and will not
interfere with the manufacturing, processing, marketing, preparation for sale,
distribution or sale of any of the Inventory or other realization upon Lender
Collateral on or from, or removal of any of the Inventory or Records relating
thereto by Lender from, any of the Equipment or Mortgaged Premises; provided,
however, that the provisions of this subparagraph (b) shall in no event be
deemed to prohibit the Senior Note Trustee from (i) enforcing or exercising,
and the Senior Note Trustee shall have the right at any time to enforce or
exercise, any and all of its rights and remedies under the Senior Note
Agreements, or at law, or (ii) seeking to foreclose or realize upon (judicially
or nonjudicially) its lien upon the Senior Note Collateral or assert any claim
or interest therein at any time; provided, that, in each case under clauses (i)
or (ii), such enforcement, exercise, foreclosure, realization or assertion
shall be expressly subject to Lender's right to use the Mortgaged Premises,
Equipment and Intellectual Property for the purposes set forth herein.
2.3 Extension of Permitted Use Period. If, as a result of the
application of any bankruptcy, insolvency, reorganization, receivership or
other similar law, Lender is prevented for any period of time during the
Permitted Use Period from exercising its rights and remedies with respect to
any Lender Collateral located on the Mortgaged Premises or otherwise granted
hereunder, the Permitted Use Period shall be extended by such period of time.
SECTION 3. MISCELLANEOUS
3.1 Representations.
(a) The Senior Note Trustee represents and warrants to Lender that:
(i) the execution, delivery and performance of this Agreement
by the Senior Note Trustee is within its powers in its capacity as Senior Note
Trustee for the holders of Senior Notes, has been duly directed pursuant to the
Indenture, and does not contravene any law, any provision of any of the Senior
Note Agreements or any agreement to which the Senior Note Trustee is a party or
by which it is bound, and shall be binding upon the Senior Note Trustee, any
successor or replacement trustee under
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<PAGE> 7
the Senior Note Indenture, as well as all existing and future holders of Senior
Notes;
(ii) this Agreement constitutes the legal, valid and binding
obligation of Senior Note Trustee, enforceable according to its terms, except
to the extent that (x) the foregoing may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time generally affecting the enforcement of creditors' rights and remedies and
by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (y) the same may be subject
to the discretion of the court before which any proceeding with respect thereto
may be brought.
(b) Lender hereby represents and warrants to the Senior Note Trustee
that:
(i) the execution, delivery and performance of this Agreement
by Lender is within its powers, has been duly authorized by Lender and does not
contravene any law, any provision of the Loan Agreement, or any agreement to
which Lender is a party or by which it is bound; and
(ii) this Agreement constitutes the legal, valid and binding
obligation of Lender, enforceable according to its terms, except to the extent
that (x) the foregoing may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time generally
affecting the enforcement of creditors' rights and remedies and by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) and (y) the same may be subject to the
discretion of the court before which any proceeding with respect thereto may be
brought.
3.2 Successors and Assigns.
(a) This Agreement shall be binding upon each of Lender, the Senior Note
Trustee and the holders of Senior Notes, and their respective successors,
participants and assigns, and shall inure to the benefit of each of them and
their respective successors, participants and assigns; provided, however, that
any successor or assignee of either party hereto shall in no event be entitled
to the rights and benefits hereunder until such time as such successor or
assignee shall have (i) executed and delivered a supplement to this Agreement
pursuant to which (x) it agrees to be bound by all of the terms and provisions
hereof and (y) makes substantially the same representations and warranties as
those made by its predecessor in interest pursuant to Section 3 of this
Agreement and (ii) delivered to the counterparty hereto such evidence as may be
reasonably requested by such counterparty of such successor or assignee's power
and authority to perform its obligations hereunder. Lender shall at all times
be entitled to
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<PAGE> 8
deal exclusively with the Senior Note Trustee for all matters hereunder
notwithstanding any sale, assignment, participation or other transfer by any
holder of Senior Notes of any interest in the Senior Note Debt or the Senior
Note Collateral.
(b) Lender reserves the right to grant participations in or otherwise
sell, assign, transfer, negotiate all or any part of, or any interest in, the
Lender Debt and the Lender Collateral; provided, that, the Senior Note Trustee
shall not be obligated to give any notices to or otherwise in any manner deal
directly with any participant in the Lender Debt, and no participant shall be
entitled to any rights or benefits under this Agreement, except through Lender.
(c) In connection with any assignment or transfer of any or all of the
Lender Debt, or of any or all rights of Lender in the Lender Collateral, other
than pursuant to a participation, the Senior Note Trustee agrees, at the sole
cost and expense of Borrower, to execute and deliver an agreement containing
terms substantially identical to those contained herein in favor of any such
assignee or transferee. In addition, the Senior Note Trustee agrees, at the
sole cost and expense of Borrower, to execute and deliver an agreement
containing terms substantially identical to those contained herein in favor of
any third person who also executes such agreement and succeeds to or replaces
any or all of Lender's financing of Borrower, whether such successor financing
or replacement occurs by transfer, assignment, "take out" or any other means
or vehicle, provided only that such successor or replacement financing is not
prohibited by the then-current terms of the Senior Note Agreements.
3.3 No Third Parties Benefitted. This Agreement is solely for the benefit
of the Lender, the Senior Note Trustee and the holders of Senior Notes, and
their respective successors, participants and assigns, and no other person
(including, without limitation, Borrower or a creditor or creditors'
representative of Borrower, other than Lender, the Senior Note Trustee and the
holders of Senior Notes and their respective successors, participants and
assigns) shall have any right, benefit, priority or interest under, or because
of the existence of, this Agreement.
3.4 Disclosures; Non-Reliance. Each of Lender, the Senior Note Trustee,
and the holders of Senior Notes have the means to be, and shall in the future
remain, fully informed as to the financial condition and other affairs of
Borrower. Lender shall not have any obligation to or duty to disclose any such
information to the Senior Note Trustee or the holders of Senior Notes, and the
Senior Note Trustee and holders of Senior Notes shall have no obligation or
duty to disclose any such information to Lender. Except as expressly set forth
in this Agreement: the parties hereto have not otherwise made to each other,
nor do they hereby make to each other, any agreements, representations or
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<PAGE> 9
warranties, express or implied, nor do they assume any liability to each other
with respect to any matter.
3.5 Exercise of Rights.
(a) Lender shall not be liable to the Senior Note Trustee or the
holders of Senior Notes, and the Senior Note Trustee and the holders of the
Senior Notes shall not be liable to Lender, by reason of their respective
exercise or enforcement of their rights under this Agreement, or of their
respective rights or remedies under the Loan Agreement or the Senior Note
Agreements, as the case may be, except for any such exercise of rights or
remedies prohibited by this Agreement.
(b) In no event will Lender be liable to account to the Senior Note
Trustee or the holders of Senior Notes for any proceeds of asset dispositions
that may be received by Lender and applied to the Lender Debt, whether or not
Lender at any time has re-lent or does re-lend such sums or any portion thereof
to Borrower. It shall be the sole responsibility of the Senior Note Trustee to
monitor the disposition by Borrower of the Senior Note Collateral or other
assets of Borrower and to require the Borrower (but not the Lender) to account
to the Senior Note Trustee and/or the holders of Senior Notes for the
application and disposition of the proceeds thereof (in each case to the extent
provided in the Senior Note Agreements).
(c) In no event will the Senior Note Trustee or the holders of Senior
Notes be liable to account to Lender for any proceeds of asset dispositions
that may be received by the Senior Note Trustee and applied to the Senior Note
Debt. It shall be the sole responsibility of Lender to monitor the disposition
by Borrower of the Lender Collateral or other assets of Borrower and to require
the Borrower (but not the Senior Note Trustee or the holders of the Senior
Notes) to account to Lender for the application and disposition of the proceeds
thereof (in each case to the extent provided in the Financing Agreements).
(d) In the event that the Senior Note Trustee or Lender shall, in the
exercise of its respective rights under the Senior Note Agreements or Financing
Agreements, as the case may be, receive physical possession of personal
property of Borrower, other than, in the case of receipt by Lender, funds
credited to, or transferred to Lender through, the lockbox, blocked accounts or
other depository account arrangements established pursuant to the Financing
Agreements, then, if the receiving party has actual knowledge at the time of
its receipt that such property represents the other party's collateral as
provided hereunder (i.e., such property represents Lender Collateral in the
case of such property received by the Senior Note Trustee or any holder of
Senior Notes, or represents Senior Note Collateral in the case of such property
received by Lender), then the receiving party shall notify the other party that
it has received physical
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possession of such collateral and shall hold the same as bailee for perfection
purposes only for the other party and shall, as promptly as practicable
thereafter, make available or deliver to the other party such property, or, at
the receiving party's option, retain possession of such property until a
disposition is directed by a court of competent jurisdiction.
(e) Lender may, without affecting its rights under this Agreement,
extend, amend or in any way modify the terms of payment or performance of all
or any portion of the Lender Debt or any other term or provision of the
Financing Agreements, without the consent of, and without giving notice thereof
to the Senior Note Trustee or any holder of Senior Notes.
3.6 Term. This Agreement is a continuing agreement and shall remain in full
force and effect until all of the Lender Debt has been fully paid and satisfied
and the Loan Agreement and all other Financing Agreements have been terminated.
3.7 Notices. All notices and other communications provided for hereunder
shall be in writing sent to the applicable address for the party to be notified
as set forth on the signature pages of this Agreement, or as to each party, to
such other address as shall be designated by such party in a written notice to
the other party in accordance with this Section. Except with respect to notices
as to which actual receipt is required hereunder, all such notices and
communications shall be deemed to be validly served, given or delivered: (i)
five (5) business days following deposit in the United States mails, certified
mail, return receipt requested, with proper postage prepaid; (ii) one (1)
business day after sending, if sent by recognized overnight courier service
with instructions to deliver the next business day; (iii) upon delivery
thereof, if delivered by hand to the party to be notified; or (iv) upon
telecopier acknowledgment of receipt thereof, if telecopied to the specified
telecopier number for the party to be notified.
3.8 Entire Agreement. This Agreement contains the entire agreement of the
parties hereto with respect to the subject matter hereof. No amendment or
modification of any of the provisions of this Agreement shall be deemed to be
made, nor any provision waived, unless the same shall be in writing signed by
the party against whom such amendment, modification or waiver is sought to be
enforced.
3.9 Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Georgia, except
that no doctrine of choice of law shall be used to apply the laws of any other
state or jurisdiction. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law,
-10-
<PAGE> 11
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
3.10 Further Assurances. Each of the parties hereto shall execute and file,
if necessary, all such further documents and instruments, and perform such
other acts, as may be necessary to effectuate the purposes of this Agreement.
3.11 Counterparts. This Agreement may be executed in any number of
counterparts, and by each of the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CONGRESS FINANCIAL CORPORATION
(SOUTHERN)
By: /s/ S. Albert Gaston
----------------------------
Title: Senior Vice President
-------------------------
Address:
200 Galleria Parkway
Suite 1500
Atlanta, Georgia 30339
Attention: Mr. Morris P. Holloway
Telecopier No.: (770) 956-8120
IBJ SCHRODER BANK & TRUST COMPANY,
as Senior Note Trustee
By: /s/ Terence Rawlins
----------------------------
Title: Assistant Vice President
-------------------------
Address:
One State Street
New York, New York 10004
Attention: Mr. Lance Wickel
Telecopier No.: (212) 858-2156
-11-
<PAGE> 12
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned hereby acknowledges (i) the terms of the foregoing
Intercreditor Agreement between the Senior Note Trustee and Lender (the
"Agreement") and agrees that it will, together with its successors and assigns,
be bound by the terms thereof and (ii) that it does not and will not receive
any right, benefit, priority or interest under or because of the existence of
the Agreement.
The undersigned agrees to execute and deliver such additional documents
and take such additional action as may be reasonably requested by Lender or the
Senior Note Trustee to effectuate the provisions and purposes of the Agreement.
TOM'S FOODS INC.
By: /s/ S. Albert Gaston
---------------------------
Title: Senior Vice President
------------------------
Address:
900 8th Street
P.O. Box 60
Columbus, Georgia
Attention: Mr. S. Albert Gaston
Telecopier No.: (706) 323-8231
-12-
<PAGE> 13
EXHIBIT A
Lender Collateral
"Lender Collateral" shall mean all of Borrower's right, title and interest
in and to the following property and interests in property of Borrower,
whether now owned or hereafter acquired or existing, and wherever located:
(a) all present and future rights of Borrower to payment for goods sold
or leased or for services rendered, which are not evidenced by instruments or
chattel paper, and whether or not earned by performance (collectively,
"Accounts");
(b) all present and future contract rights, chattel paper, documents,
instruments, letters of credit, bankers' acceptances and guaranties to the
extent relating to Accounts, Inventory or other Lender Collateral, all present
and future Distributor/Franchisee Receivables (as defined in the Loan Agreement
as in effect on the date hereof) and all present and future general intangibles
for the payment of money (including claims and choses in action) to the extent
relating to Accounts, Inventory or other Lender Collateral;
(c) all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates, or, to the extent
relating to Accounts, Inventory or other Lender Collateral, held at or received
by or in transit to any other depository or other institution from or for the
account of Borrower, in each case whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts, Inventory or other Lender Collateral, including, without
limitation, (i) rights and remedies under or relating to guaranties, contracts
of suretyship, letters of credit and credit and other insurance related to
Accounts, Inventory or other Lender Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of
an unpaid vendor, lienor or secured party relating to Accounts, Inventory or
other Lender Collateral, (iii) goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, Accounts, Inventory or other Lender Collateral, including, without
limitation, returned, repossessed and reclaimed goods, and (iv) deposits by and
property of account debtors or other persons securing the obligations of
account debtors;
A-1
<PAGE> 14
(d) all now owned and hereafter existing or acquired raw materials,
work-in-process, finished goods and all other inventory of whatsoever kind or
nature, wherever located (collectively, "Inventory");
(e) all present and future trademarks, tradenames and service marks
(together with the goodwill of the business symbolized thereby), patents,
copyrights and other Intellectual Property (as defined in Exhibit B to this
Agreement) affixed to or appearing on or relating to any Inventory or the
products thereof or other Lender Collateral or otherwise used in the
manufacturing, processing, marketing, preparation for sale, distribution or
sale of Inventory or the products thereof or other Lender Collateral; provided,
however, that the security interest granted to Lender in trademarks, tradenames
and service marks (and the goodwill of the business symbolized thereby),
patents, copyrights and other Intellectual Property described in this
subparagraph (e) shall be limited to such right, title and interest as shall be
required in order for Lender to exercise its rights and remedies under the Loan
Agreement, including the fulfillment of orders, the manufacturing and
processing of Inventory and the products thereof, and the marketing,
preparation for sale, distribution, sale or other disposition of Inventory and
the products thereof, including the receipt and retention by Lender of the
proceeds thereof;
(f) all books of account of every kind or nature, purchase and sale
agreements, invoices, ledger cards, bills of lading and other shipping
evidence, statements, correspondence, memoranda, credit file, and other data to
the extent relating to the Lender Collateral or any account debtor, together
with the tapes, disks, diskettes and other data and software storage media and
devices, file cabinets or containers in or on which the foregoing are stored
(including any rights of Borrower with respect to the foregoing maintained with
or by any other person); and
(g) all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damages to or destruction of any or all of the foregoing, and also
including all proceeds of business interruption insurance and, to the extent
relating to Accounts, Inventory or other Lender Collateral, all other insurance
proceeds, whether or not constituting proceeds of any of the other Lender
Collateral.
A-2
<PAGE> 15
EXHIBIT B
SENIOR NOTE COLLATERAL
"Senior Note Collateral" shall mean all the property and assets
of Borrower, both real and personal, movable and immovable, tangible and
intangible of whatsoever nature and kind now owned or hereafter acquired and
wherever located, including, without limitation, the following:
(a) Any and all present estates or interests of Borrower in land,
together with all Borrower's reversionary rights in and to any and all lots,
parcels, alterations, partitions, easements, rights-of-way, sidewalks, strips
and gores of land, drives, roads, curbs, streets, lanes, ways, alleys,
passages, passageways, sewer rights, waters, woods, water courses, water
rights, mineral, gas and oil rights, power, air, light and other rights,
estates, titles, interests, privileges, liberties, servitudes, licenses,
tenements, hereditaments and appurtenances whatsoever, in any way belonging,
relating or appertaining thereto, or any part thereof, or which hereafter shall
in any way belong, relate or be appurtenant thereto (collectively, the
"Land");
(b) Any and all estates or interests of Borrower in the buildings,
structures and other improvements and any and all alterations now or hereafter
located or erected on the Land, including, without limitation, attachments,
walks and ways (collectively, the "Improvements"; together with the Land, the
"Premises");
(c) Any and all permits, licenses, franchises, certificates, consents,
approvals and authorizations, however characterized, issued or in any way
furnished, whether necessary or not, for the operation and use of the Premises,
including, without limitation, building permits, certificates of occupancy,
environmental certificates, industrial permits, or licenses and certificates of
operation;
(d) Any and all interest of Borrower in (i) equipment of any kind or
nature and located at or used in connection with the operation of Borrower's
business conducted at the Premises, whether or not affixed to the Premises, and
all machinery, apparatus, equipment, fittings, fixtures, improvements and
articles of personal property of every kind and nature whatsoever now or
hereafter attached or affixed to the Premises or used in
<PAGE> 16
-2-
connection with the use and enjoyment of the Premises or the maintenance or
preservation thereof, including, without limitation, all utility systems, fire
sprinkler and alarm systems or other fire prevention or extinguishing apparatus
materials, HVAC equipment, boilers, electronic data processing equipment (to
the extent relating to the Premises or any equipment), telecommunications
equipment or computer equipment (to the extent relating to the Premises or any
equipment), office machinery, switchboards, computers and computer hardware and
software (whether owned or licensed), all indoor or outdoor furniture, tools,
materials, refrigeration, electronic monitoring, water or lighting systems,
power, sanitation, waste removal, elevators, maintenance or other systems or
equipment, and all other articles used or useful in connection with the use or
operation of any part of the Premises; (ii) all modifications, renewals,
improvements, alterations, repairs, substitutions, attachments, additions,
accessories and other property now or hereafter affixed thereto or used in
connection with the operation of any part of the Premises as such, and (iii)
all replacements and all other parts therefor (collectively, the "Equipment");
(e) All Borrower's right, title and interest, as landlord, licensor or
grantor, in all leases and subleases of space, tenancies, lettings, occupancy
or concession agreements, all books and records which contain payments under
such leases, subleases, occupancy or concession agreements, written or
otherwise, now existing or hereafter entered into to the extent relating in any
manner to the premises or the equipment and any and all amendments,
modifications, supplements and renewals of any thereof (each such lease,
sublease, occupancy or concession agreement, together with any such amendment,
modification, supplement or renewal, a "Lease"), whether now in effect or
hereafter coming into effect including, without limitation, all rents,
additional rents, rental income, receipts, management fees payable by tenants,
cash, guarantees, letters of credit, bonds, sureties or securities deposited
thereunder to secure performance of the lessee's, or obligee's obligations
thereunder, revenues, earnings, issues, profits and income, advance rental
payments, payments incident to assignment, sublease or surrender of a Lease,
claims for forfeited deposits, claims for damages and awards, now due or
hereafter to become due, with respect to any Lease (collectively, the "Rents");
(f) All general intangibles and contract rights of every kind and
nature to the extent relating to any item or type of Senior Note Collateral,
and, in any event, without limitation, any and all goodwill, descriptions, name
plates, claims, choses-in-action, causes of actions, catalogs, confidential
infor-
<PAGE> 17
-3-
mation, consulting agreements, engineering contracts to the extent relating to
the Senior Note Collateral and such other intangible assets which relate to the
goodwill of the business of Borrower to the exent connected with the use of, or
symbolized by, any of the Intellectual Property and rights to refund or
indemnification to the extent the foregoing relate to any item or type of
Senior Note Collateral, deposits and deposit accounts, letters of credit,
documents, instruments, chattel paper, bankers' acceptances and guarantees, and
income tax refunds to the extent relating to any item or type of Senior Note
Collateral, claims for tax or other refunds against any federal, state or local
government, or any agency or authority or other subdivision thereof to the
extent relating to any item or type of Senior Note Collateral, corporate or
other business records to the extent relating to any item or type of Senior
Note Collateral and all reserves, deferred payments, and claims of every kind
or character to the extent relating thereto (collectively, the "Contract
Rights");
(g) Any and all "documents" (as such term is defined in the Uniform
Commercial Code as in effect in any relevant Jurisdiction) to the extent
relating to any item or type of Senior Note Collateral, and any and all lists,
books, records, ledgers, printouts, computer programs, computer disks or tape
files, computer runs and other computer prepared information, files (whether in
printed form or stored electronically), tapes or other papers or materials to
the extent containing information relating to any item or type of Senior Note
Collateral;
(h) The "Collateral Account" established and maintained pursuant to
the Indenture and all funds from time to time on deposit therein, all
investments of such funds and all certificates and instruments from time to
time representing or evidencing such investments, all notes, certificates of
deposit, checks and other instruments from time to time hereafter delivered to
or otherwise possessed by the Senior Note Trustee for or on behalf of Borrower
in substitution for any or all of the Senior Note Collateral, and all interest,
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the items constituting Senior Note Collateral;
(i) All surveys, drawings, plans, specifications, construction
contracts, file materials, operating and maintenance records, catalogues,
tenant lists, correspondence, advertising materials, operating manuals,
warranties, guaranties, appraisals, studies and data to the extent relating to
any item or
<PAGE> 18
-4-
type of Senior Note Collateral or the construction of any alteration or the
maintenance of any permit;
(j) All of Borrower's present and after acquired right, title and
interest in any and all of the following (collectively, the "Intellectual
Property"):
(i) any and all copyrights, whether statutory or common law, and all
applications, registrations and recording relating to such
copyrights in the United States Copyright Office or in any other
country, together with any and all (A) rights and privileges
arising under applicable law with respect to Borrower's use of
any copyrights, (B) reissues, extensions, continuations and
renewals thereof, (C) damages and payments now and hereafter due
and/or payable for past or future infringements thereof, (D)
rights corresponding thereto throughout the world and (E) rights
to sue for past, present and future infringements thereof
(collectively, the "Copyrights");
(ii) any and all patents and all applications, registrations and
recordings relating thereto as may at any time be filed in the
United States Patent and Trademark Office or in any other
country, together with any and all (A) rights and privileges
arising under applicable law with respect to borrower's use of any
patents, (B) inventions and improvements described and claimed
therein, (C) reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, (D) damages and
payments now and hereafter due and/or payable for past or future
infringements thereof, (E) rights corresponding thereto
throughout the world, and (F) rights to sue for past, present and
future infringements thereof (collectively, the "Patents"),
(iii) any and all trademarks (including service marks), trademark
registrations, trade styles and trade names and applications
therefor as may at any time be filed in the United States Patent
and Trademark Office or any other country, together with any and
all (A) rights and privileges arising under applicable law with
respect to Borrower's use of any trademarks, (B) reissues,
continuations, extensions and renewals thereof, (C) damages and
payments now and hereafter due and/or payable for past or future
<PAGE> 19
-5-
infringements thereof, (D) all rights corresponding thereto
throughout the world and (E) rights to sue for past, present and
future infringements thereof (collectively, the "Trademarks");
and
(iv) any and all license and distribution agreements with any
other party with respect to a Patent, Trademark or Copyright,
whether Borrower is a Licensor or licensee, distributor or
distributee under any such license or distribution agreement,
along with any and all (A) renewals, extensions, supplements and
continuations thereof (B) damages and payments now and hereafter
due and or payable to Borrower for past or future infringements
thereof and (C) rights to sue for past, present and future
infringements thereof (collectively, the "Licenses");
(k) (i) All issued and outstanding shares of capital stock of each
entity which is or becomes, as a result of any occurrence, a Restricted
Subsidiary (as defined in the Indenture) of Borrower, including the
certificates, if any, representing the shares and any interest of Borrower in
the entries on the books of any financial intermediary pertaining thereto
(collectively, the "Pledged Shares"), (ii) all additional shares,
participations or other equivalents of or interests in (however designated) the
equity including, without limitation, common stock, preferred stock and
partnership, membership or other interests) (collectively the "Capital Stock")
of any issuer of the Pledged Shares from time to time acquired by Borrower in
any manner including the certificates, if any, representing such additional
shares and any interest of Borrower in the entries on the books if any
financial intermediary pertaining to such additional shares (collectively, the
"Additional Shares") and (iii) all dividends, cash, options, warrants, rights,
instruments, distributions, partnership distributions, returns of capital,
income, profits and other property, interests or proceeds from time to time
received, receivable or otherwise distributed to Borrower in respect of or in
exchange for any or all of the Pledged Shares or Additional Shares
(collectively, the "Distributions");
(l) All the estate, right, title, interest, claim and demand
whatsoever, of Borrower, in law, equity, on otherwise howsoever, of, in, and to
the same and every part of the foregoing; and
<PAGE> 20
-6-
(m) All proceeds of the conversion, voluntary or involuntary, of any of
the foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance (and any unearned premiums thereon), indemnity, warranty,
guarantee or claims payable to the Senior Note Trustee or Borrower from time to
time with respect to any item or type of Senior Note Collateral, payments (in
any form whatsoever) made or due and payable to Borrower from time to time in
connection with any requisition, confiscation, condemnation, eminent domain,
seizure or forfeiture of all or any part of the Senior Note Collateral by any
governmental authority (or any person acting under color of a governmental
authority), judgment or other awards or payments with respect thereto or
settlement in lieu thereof, including, without limitation, interest thereon,
products of the Senior Noteholder Collateral, and other amounts from time to
time paid or payable under or in connection with any of the Senior Noteholder
Collateral (collectively, "Proceeds");
provided, however, that Senior Note Collateral shall in no event include (i)
any of the Lender Collateral, (ii) the real property, buildings, improvements
and fixtures owned by the Company and located at its plant in Knox County,
Tennessee, (iii) the real property, building, improvements, fixtures and
equipment owned by the Company and located at its plant in Taylor County,
Florida, or (iv) certain funds held in escrow for the benefit of the holders of
the Industrial Revenue Bonds (as defined in the Indenture).
<PAGE> 1
Exhibit 10.8
TOM'S FOODS INC.
DISTRIBUTOR AGREEMENT
THIS AGREEMENT is made and entered into ___________________, 19____,
between Tom's and ____________________________________________________, with
its (his) principal place of business at ______________________________________
______________________________________.
WITNESSETH:
WHEREAS, Tom's, among other items, manufactures or has manufactured for it
the Products (as defined herein). All of the Products which Distributor is
authorized to sell and distribute pursuant to the terms of this Agreement are
listed and described on the Tom's Product List (as defined herein); and
WHEREAS, Tom's sells the Products to, among others, independent
distributors; and
WHEREAS, the value of Tom's distributorships and the ability to secure
Vending Machine (as defined herein) and customer locations are due in large
part to the goodwill created by Tom's through its promotion and support of the
Products (as defined herein) and the Proprietary Marks (as defined herein); and
WHEREAS, Distributor desires to enter into the business of selling and
distributing the Products and certain other items;
NOW, THEREFORE, the parties agree as follows:
I. DEFINITIONS
In addition to the other terms defined in this Agreement, the following
terms shall have the meanings set forth in this Section:
A. Adequate Service - see Section VI.D. In addition to the definition of
this term contained in Section VI.D., this term shall also be used herein to
describe the time and manner in which the customers of Distributor desire
service and/or delivery of Products by Distributor.
B. Affiliated Products shall mean certain other snack food and confection
items and cold and hot beverages which may be specified as "Affiliated
Products" from time to time by Tom's and listed on Appendix A attached to this
Agreement and made a part hereof.
C. Agreement shall mean this Tom's Foods Inc. Distributor Agreement by and
between Tom's and Distributor, and any amendment, renewal or successor thereto.
D. Area shall mean the geographical area within which Distributor operates
the Tom's Distributorship and which is more specifically described in Appendix
B attached to this Agreement and made a part hereof.
E. "base business purchases" - see Section V.B.(2)(a).
F. Combination Distributorship shall mean a type of distributorship granted
by Tom's in which a distributor is authorized to sell and distribute Products
and Affiliated Products through Vending Machines, by means of full service
direct store door or store front delivery ("DSD"), through other methods of
distribution as Tom's may specifically authorize or designate in the future,
and to serve as a Delivery Agent, as more specifically provided in Sections II.
and VI. below.
G. Consigned Inventory shall mean an inventory of Products and Affiliated
Products owned by Tom's and held on consignment by Distributor to be delivered
by Distributor as Delivery Agent to National Accounts.
H. Deferred Licensing Fee shall mean a non-refundable cash fee due Tom's
upon a Transfer, termination or expiration of this Agreement, or renewal of
this Agreement, as more specifically described in Section IX.D.(1) below.
I. Delivery Agent shall mean any person or person(s) designated by Tom's to
hold on consignment for Tom's Consigned Inventory and to deliver Consigned
Inventory to National Accounts.
1
<PAGE> 2
J. Delivery Fee shall mean the fee paid to Distributor as Delivery Agent
for delivering Consigned Inventory to National Accounts.
K. Distributor shall mean the individual, corporation, partnership or other
entity as described in the initial paragraph of this Agreement, and
Distributor's legal representatives, heirs, successors and assigns.
L. Distributor Price List or DPL shall mean the price of each Product as
shown on the then-current Tom's Product List.
M. Distributor's Assets shall mean those assets of Distributor described in
Sections XI.D. and XI.E.
N. force majeure - see Section V.B.(2)(b)
O. Location shall mean the location of Distributor's Warehouse specified
in Appendix B.
P. National Account Advance - see Section VI.B.
Q. National Account Assets - see Section XI.H.
R. National Accounts shall mean retail chain and convenience stores, retail
and wholesale mass merchandisers, food service companies, United States armed
forces, and local, state and federal political subdivisions and agencies who
are customers of Tom's.
S. Net Cash Flow shall mean net cash generated during the preceding twelve
(12) month or other applicable period from all operating and investment
activities of the Tom's Distributorship after payment of directly related cost
of goods sold, reasonable operating and administrative expenses, and reasonable
management compensation, but before or excluding the payment of any owner
withdrawals (other than said reasonable management compensation), debt service,
income taxes and dividends, and reduced for deferred maintenance and capital
needs (including without limitation, equipment, leasing and financing needs) of
the Tom's Distributorship and excluding the effects of the receipts and
disbursements arising as a result of Distributor serving as a Delivery Agent.
Net Cash Flow shall be determined by Tom's from, among other things, a review
of the information and documents shown on and described in paragraph C of
Appendix E, including without limitation, federal income tax returns.
T. OTC/Delivery Agent Distributorship shall mean a type of distributorship
granted by Tom's authorizing a distributor to sell and distribute the Products
and Affiliated Products by means of full service direct store door or store
front delivery ("DSD"), or through other methods of distribution as Tom's may
specifically authorize or designate in the future, and to serve as a Delivery
Agent, as more specifically provided in Sections II. and VI. below.
U. Principal Shareholder and/or Principal Partner shall mean the person or
persons who have executed the signature page(s) of this Agreement agreeing to
be individually and personally bound by all the obligations of the Distributor
under this Agreement.
V. Products shall mean those certain prepackaged snack food and confection
items manufactured by or for Tom's under the Proprietary Marks, and listed and
described on the Tom's Products List. Products shall not include (i) snack
food products and other items sold under any trademark or trade name other than
the Proprietary Marks, or (ii) snack food products and other items manufactured
by or for Tom's under the Proprietary Marks but which are not listed and
described on the Tom's Product List.
W. Proprietary Marks shall mean the trademarks "Tom's" and "Tom's Great
American."
X. "purchases" - see Section V.B.(2).
Y. Request - see Section IV.P.
Z. Tom's shall mean Tom's Foods Inc., a Delaware corporation with its
principal office and place of business in Columbus, Georgia, and its
affiliates, successors and/or assigns.
AA. Tom's Distributorship shall mean the business which is the subject
matter of this Agreement which authorizes and obligates the Distributor to
purchase, market, sell and distribute Products, Affiliated Products and such
other authorized products upon the terms and conditions contained in this
Agreement.
BB. Tom's Product List shall mean a list of Products provided to
Distributor by Tom's from time to time setting forth the Products available to
Distributors in a specific geographic area or region, the prices of each
2
<PAGE> 3
Product, the terms of sale and delivery, and, if any, available discounts. The
Tom's Product List, which is effective as of the date of this Agreement, is
attached hereto as Appendix C and made a part hereof.
CC. "total purchases" - see Section V.B.(2)(b).
DD. Transfer - see Section IX.B.
EE. Transfer Fee - see Section IX.D.(2).
FF. Underdeveloped Area shall mean the portion or portions of the Area that
Tom's, in its sole discretion, deems to be undeveloped or underdeveloped by
Distributor.
GG. Vending Distributorship shall mean the type of Distributorship granted
by Tom's in which a distributor is authorized to sell and distribute Products
and Affiliated Products through Vending Machines, as specifically provided in
Section II. below.
HH. Vending Machines shall mean manual, electrical and all other types of
vending machines through which the Distributor shall sell Products and
Affiliated Products.
II. Warehouse shall mean the Distributor's Warehouse, storage facility or
location specified in Appendix B.
II. GRANT
A. Tom's hereby grants to Distributor the right, and Distributor
undertakes the obligation, to conduct and operate the Tom's Distributorship to
purchase, market, sell and distribute only:
(i) the Products, and
(ii) the Affiliated Products.
Distributor shall sell and distribute the Products and Affiliated Products
through one of the following:
(1) Vending Distributorship. If Distributor is granted a Vending
Distributorship then Distributor shall sell and distribute the Products and the
Affiliated Products through Vending Machines located within the Area or through
any purchasers who resell the Products and Affiliated Products solely to
consumers through Vending Machines located in the Area. Distributor may not
sell or distribute Products and Affiliated Products through any other methods
of distribution. Distributor agrees that the Products shall occupy not less
than 75% of the facings or spindles in each snack Vending Machine. The
remaining facings or spindles may be used to dispense Affiliated Products and
other high quality products which are not similar to or competitive with any of
the Products and Affiliated Products and are approved in writing in advance by
Tom's. With regard to cold and hot beverages, Distributor agrees to use
Distributor's best efforts to sell and distribute Affiliated Products through
Vending Machines as described above; however, Distributor may sell and
distribute such other high quality beverage products through Vending Machines
as consumer/market forces dictate. Tom's may at any time inspect or audit
Distributor's Vending Machines and/or Warehouse to determine compliance with
this Section and this Agreement; or
(2) OTC/Delivery Agent Distributorship. If Distributor is granted an
OTC/Delivery Agent Distributorship then Distributor shall sell and distribute
the Products and the Affiliated Products by means of full-service direct store
door or store front delivery ("DSD") or through other methods of distribution
as Tom's may specifically authorize or designate in the future to customers
located within the Area who sell or resell the Products and the Affiliated
Products to customers or consumers located within the Area and shall serve as
Delivery Agent as described in Section VI below. Distributor may not sell or
distribute Products and Affiliated Products (i) through Vending Machines, or
(ii) through any purchasers who resell the Products and Affiliated Products to
consumers through Vending Machines; or
(3) Combination Distributorship. If Distributor is granted a
Combination Distributorship then Distributor shall sell and distribute Products
and Affiliated Products within the Area by all of the methods of distribution
provided for in a Vending Distributorship and an OTC/Delivery Agent
Distributorship, subject to the limitations and restrictions provided in this
Agreement.
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B. The Affiliated Products and the channel(s) of distribution through
which each Affiliated Product may be sold, if applicable, are specified in
Appendix A. Appendix A may be amended unilaterally by Tom's from time to time.
Distributor is not required to purchase any of the Affiliated Products.
C. Distributor has been granted a ________________________________________
Distributorship, and Distributor may sell Products and Affiliated Products by
methods of distribution applicable to such Distributorship (as set forth in
Section II.A. above).
D. During the term of this Agreement, provided that Distributor is not in
default under any term or provision of this Agreement, TOM's will not designate
another distributor for selling or distributing the Products by the same
methods of distribution as Distributor within the Area, and Tom's will not
itself or through others sell and distribute the Products through such methods
of distribution; provided, however, regardless of whether Distributor is in
default hereunder, Tom's or its designees may sell and distribute the Products
within the Area through any or all of the following: (i) through methods of
distribution other than those used by Distributor, (ii) to National Accounts,
(iii) through vending operations organized, acquired or developed by Tom's, its
subsidiary and/or its affiliate, (iv) to any customer situated within the Area
requesting service, if Distributor is unable or unwilling to provide such
service, or (v) to customers located within the Area under private labels,
generic packaging and under trademarks other than the Proprietary Marks.
Nothing herein shall be construed to prevent or inhibit Tom's in any way from
distributing and/or selling merchandise, products, goods, wares or any other
things other than the Products within the Area.
Notwithstanding any other provision of this Agreement, Distributor and
Tom's agree that Tom's may designate another distributor to sell and distribute
the Products and Affiliated Products, or Tom's, itself or through others, may
sell and distribute the Products or Affiliated Products by or through any
methods of distribution within the Area upon the occurrence or happening of an
event which causes Distributor to be in default under this Agreement. In such
event, Tom's shall not be required, prior to designating another distributor or
selling and distributing Products or Affiliated Products itself or through
others, to notify Distributor of such default or to terminate Distributor for
such default; provided, however, Tom's does not waive, but reserves any and all
rights to so notify and/or terminate Distributor. Within any given Area, Tom's
may designate an OTC/Delivery Agent Distributorship and a Vending
Distributorship or a Combination Distributorship.
III. TERM AND RENEWAL; TERMINATION BY DISTRIBUTOR
A. Except as otherwise provided herein, the initial term of this Agreement
shall expire seven (7) years from the date of this Agreement.
B. The Tom's Distributorship shall continue in full force and effect
following the initial term for additional consecutive renewal terms of five (5)
years each, subject to Distributor's payment of the Deferred Licensing Fee as
described in Section IX.D.(1) hereof and execution of the then-current form of
Tom's Distributor Agreement at least 90 days prior to the expiration of the
then-current term. The then-current form of Tom's Distributor Agreement may
establish performance standards different from and/or greater than those
contained in this Agreement. In the event Distributor fails to pay timely the
Deferred Licensing Fee or to execute the then-current form of the Tom's
Distributor Agreement at least 90 days before the end of the applicable term,
Distributor shall be in default hereunder, subject to termination as provided
in Section X.C. hereof. Tom's, in its sole discretion, may refuse to renew
this Agreement at the end of the initial term or any renewal term by providing
written notice to Distributor not less than ninety (90) days prior to the end
of the term if: (i) Distributor is in default of any provision of this
Agreement; or (ii) Distributor has failed during the initial or any renewal
terms to comply with all the terms and conditions of this Agreement, regardless
of whether Distributor has subsequently cured any defaults that may have
occurred.
C. Notwithstanding any provision to the contrary contained in this
Agreement, upon Distributor failing to execute the then current form of the
Tom's Distributor Agreement or upon the giving of notice by Tom's as described
in Section III.B. above, Tom's itself or through others may at any time during
the applicable ninety (90) day period, at its option and without notice to
Distributor, enter the Area and compete with Distributor by, among
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other things, marketing, selling and distributing Products and Affiliated
Products through any methods of distribution, including without limitation, the
same methods of distribution used by Distributor. In the event Tom's elects to
so compete with Distributor, Tom's shall have the option, exercisable at any
time within said ninety (90) day period, to purchase from Distributor and
Distributor shall sell to Tom's all or a portion of (as Tom's may choose)
Distributor's Assets and National Account Assets upon the terms set forth in
Sections XI.D., XI.E. and XI.H. hereof. In such event, Distributor shall
convey such assets to Tom's in accordance with Section XI.F. hereof. Further,
Distributor agrees that upon Tom's exercise of its option to purchase
Distributor's Assets and National Account Assets as described herein, Tom's may
begin its due diligence process which shall include, but not be limited to, a
review of the items set forth in paragraph C of Appendix E and an analysis of
the market within the Area, and during said ninety (90) day period, to operate
the Tom's Distributorship in accordance with the terms of this Agreement.
IV. DUTIES OR DISCRETIONARY SERVICES OF TOM'S
A. From time to time, Tom's shall provide Distributor with a then-current
regional Tom's Products List. The Tom's Products List may be unilaterally
amended by Tom's from time to time and at any time during the term of this
Agreement.
B. Provided Distributor is not in default under this Agreement, Tom's shall
use its reasonable best business efforts to cause Products purchased by
Distributor to be delivered to the Location.
C. For ninety (90) days following the death of Distributor or of the
Principal Partner or Principal Shareholder, Tom's will furnish, upon request of
the deceased's personal representative, consulting assistance to the personal
representative to assist in the operation of the business, at no expense to
Distributor, and management assistance charged at Tom's cost. In the event
Tom's provides such consulting or management assistance, Distributor
acknowledges and agrees that Tom's shall not, by virtue of providing such
assistance or otherwise, assume any of Distributor's liabilities, and Tom's
shall have no liability to Distributor for damages, losses, or claims arising
out of or in connection with the providing of such assistance.
D. From time to time, Tom's may assist Distributor in obtaining or
purchasing Vending Machine, vehicle, display equipment, computer equipment, or
other equipment to assist Distributor in developing and growing the Tom's
Distributorship.
E. Tom's may assist Distributor in finding Vending Machine locations and in
locating and selling customer accounts.
F. Tom's may assist Distributor with the formation of plans to help
Distributor develop and grow Distributor's market.
G. Tom's has produced and continues to produce training programs to assist
Distributor in developing and growing his market, including merchandising,
selling and marketing training, and to keep Distributors advised on employment
matters including hiring, firing, worker's compensation and employee benefits.
H. Tom's may assist Distributor in financial planning relating to the
Distributorship.
I. Tom's will develop, communicate and make available to Distributor all
applicable Tom's marketing and promotion plans and programs.
J. Tom's will continue to attempt to improve existing Products and to
develop new Products in order to meet changing consumer demands.
K. Tom's will continue to look for ways or means to assist the Distributor
in reducing the cost of the operation of the Tom's Distributorship, including
without limitation, seeking lower group health, automobile and general
liability insurance coverages.
L. Subject to Tom's ability to do so, Tom's will make available to
Distributor technical advice with respect to the repair and maintenance of the
Vending Machines and other equipment of Distributor upon mutually agreeable
terms.
M. Subject to availability, Tom's will make available to Distributor
vending parts and accessories upon mutually agreeable terms.
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N. Tom's, itself or through third party vendors, may make available to
Distributor a route distribution computer system which is or will be compatible
with Tom's computer system.
O. Tom's may belong to certain trade groups or associations and if so,
Tom's may represent Distributor's interests where consistent with Tom's
interests on various matters or issues, including without limitation, legal
issues, legislative efforts or actions, tax issues, small business issues, and
employment matters.
P. In order to provide Distributor with an exit strategy, Tom's agrees,
upon Distributor's written request or upon the written request of Distributor's
representative in the event of Distributor's death or dissolution (the
"Request"), to purchase the Tom's Distributorship from Distributor upon the
following terms and conditions, to-wit:
(1) Immediately upon Tom's receipt of the Request, Distributor
acknowledges that Tom's may begin its due diligence process which shall
include, but not be limited to, a review of the items set forth in paragraph C
of Appendix E and an analysis of the market within the Area;
(2) Upon completion of said due diligence process, Tom's shall purchase
from Distributor and Distributor shall sell to Tom's all of Distributor's
Assets and National Account Assets upon the terms set forth in Sections XI.D.,
XI.E. and XI.H. hereof. Distributor shall convey such assets to Tom's in
accordance with Section XI.F. hereof; and
(3) Tom's obligation to purchase as described in this Section IV.P.
shall be contingent and conditioned upon Distributor having been at all times
in full compliance with all of the terms and conditions of this Agreement
during the full three (3) years preceding the date of the Request. If the
contingency or condition referenced in the preceding sentence is not met, then
Tom's shall not have an obligation to purchase, but shall have an option,
exercisable within forty-five (45) days of the Request, to purchase from
Distributor and Distributor shall sell to Tom's all or a portion (as Tom's may
choose) of said assets upon the terms and conditions described in Sections
XI.D., XI.E., XI.F. and XI.H. hereof.
V. DUTIES OF DISTRIBUTOR
Distributor understands and acknowledges that the operation of the
Distributorship is important to Distributor, Tom's, and other distributors in
order to develop and maintain high service standards, to increase the demand
for the Products, and to protect Tom's reputation and goodwill. Accordingly,
Distributor agrees as follows:
A. Distributor agrees that during the term of this Agreement, Distributor
shall purchase Products from Tom's only, use Distributor's best efforts and
diligently attempt to maximize the sale of the Products within the Area,
promote and market the Products, exercise good merchandising practices, provide
high quality service to Distributor's customers, solicit accounts and locations
and develop or improve new or existing business, maintain all Vending Machines
in clean, sanitary and good operating condition, technologically upgraded from
time to time consistent with good industry standards, and properly rotate all
Products, Affiliated Products, and Consigned Inventory to insure freshness.
B. Distributor acknowledges the importance to Distributor's business and to
Tom's and other distributors of annually increasing Distributor's sales volume
within the Area. Accordingly, Distributor shall:
(1) during the remainder of the calendar year during which this
Agreement is executed, purchase at least $_________ of the Products from Tom's
and purchase at least $_________ of the Products during the first full calendar
year of the term of this Agreement;
(2) during each calendar year during the term of this Agreement
subsequent to the first full calendar year, increase Distributor's dollar
volume purchases of Products ("purchases") over purchases made during the prior
calendar year as follows:
(a) Base Business. Distributor agrees to increase Distributor's
"base business purchases" by a minimum of three percent (3%). "Base business
purchases" shall mean the dollar amount of Distributor's purchases of Products
for Distributor's own account and shall not include the replenishment of
Consigned Inventory if Distributor serves as a Delivery Agent; and
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(b) Total Purchases. Distributor agrees to increase Distributor's
"total purchases" by a minimum of three percent (3%). "Total purchases" shall
mean the aggregate dollar amount of Distributor's purchases including base
business purchases and the replenishment of Consigned Inventory if Distributor
serves as a Delivery Agent.
The purchases and the required growth thereof as described in this
Section shall not include and/or will be adjusted for increases or decreases in
purchases during the applicable period due to (i) the loss of a National
Account provided such loss is through no fault of Distributor, (ii) the
exercise by Tom's of its rights to acquire Underdeveloped Area, (iii) the
occurrences of a Transfer approved and consented to by Tom's, and (iv) Acts of
God, strikes, explosions, storms, fire, riots, war, and other events of force
majeure, but excluding actions by competitors, customers or representatives of
Distributor ("force majeure").
(3) Notwithstanding any provision herein to the contrary, if Distributor
has a decrease in total purchases of five percent (5%) or more for any
consecutive three (3) month period as compared to the same period of the
preceding year, Tom's may exercise its option to terminate this Agreement
pursuant to Section X.B.(7) hereof. In determining whether to exercise its
option to terminate under this Section, Tom's will consider and make allowances
for decreases in total purchases due to (i) force majeure, (ii) the loss of a
National Account through no fault of Distributor, (iii) Tom's exercise of its
rights to acquire Underdeveloped Area, and (iv) the occurrence of an approved
Transfer.
C. Within ninety (90) days of the receipt of notice from Tom's, Distributor
shall (i) purchase and begin using in the operation of the Tom's
Distributorship, a computer system, including without limitation, handheld
computers and computer software, which has been approved by Tom's and is
compatible with any route distribution computer system that Tom's may
implement, support or require, and (ii) begin providing to Tom's, at no cost to
Tom's, all of Distributor's sales and marketing data relating to the sale and
distribution of Products in such form, detail and at such intervals as Tom's
may require. Such data shall include, but not be limited to, Product mix,
Product sales by channel, identification of Products sold and identification of
the locations of Product sales.
D. Distributor shall maintain a Warehouse which, in the opinion of Tom's,
is of adequate size, properly located to provide easy access for delivery of
the Products, and is and shall remain in a high degree of sanitation to provide
quality assurance.
E. Distributor shall permit Tom's itself or its designees to enter the
Warehouse at any reasonable time for the purpose of conducting sanitation
inspections and shall take such reasonable steps as may be necessary to correct
immediately any deficiencies so that the Warehouse is in compliance with this
Agreement and with federal, state and local laws, rules and regulations.
F. Distributor shall have and maintain a fleet of service and distribution
vehicles which, in the opinion of Tom's, is of adequate size, capacity, and
performance level to service the Area; and Distributor shall maintain the fleet
of vehicles in good repair and working order and in a clean and sanitary
condition.
G. Distributor agrees to maintain a competent, conscientious and trained
staff. Distributor agrees that Distributor's staff will be clean, well-groomed
and dressed neatly in accordance with good industry standards.
H. Distributor shall not sell or offer to sell or donate any
out-of-code-date Products for human consumption and shall remove such Products
from Distributor's Vending Machines, trucks, Warehouse, other equipment, and
from customers' places of business and destroy the same.
I. Distributor shall purchase from Tom's an initial inventory and
thereafter shall promote and sell a representative group of Products from each
category of Products.
J. Distributor agrees that if at any time a lien is placed on any assets
(including Distributor's bank account) used by Distributor in the Tom's
Distributorship, including, without limitation, any lien by the Internal
Revenue Service or any state or local taxing authority or entity, Distributor
will, within three (3) days of the filing or obtaining knowledge of such lien,
give Tom's written notice of the same.
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K. Except as prevented by force majeure, Distributor shall place an order
for Products from Tom's at least once each seven (7) days, said order to be for
a reasonable quantity of a representative group of Products from each category
of Products.
L. Distributor shall pay all obligations and indebtedness it owes to Tom's
and to any other person or entity if Tom's is a guarantor or contingently
liable on Distributor's obligations to such other person or entity as such
obligations and indebtedness become due and payable. In the event Distributor
fails to pay any obligations and indebtedness to Tom's within thirty (30) days
of the same being due, in addition to any other remedies available to Tom's,
Tom's shall be entitled to collect from Distributor a late fee not to exceed
the maximum fee allowed by applicable law. Distributor grants to Tom's the
right of set-off to be exercised by Tom's at any time, without notice.
M. Distributor agrees to use Distributor's best efforts to cooperate with
Tom's in its marketing and promotional plans.
N. Distributor shall operate Distributor's business in compliance with all
federal, state and local laws, rules and regulations and in compliance with all
of the terms, provisions and covenants of this Agreement.
O. Distributor or the Principal Shareholder or Principal Partner, as
applicable, agrees to be directly involved in the operation of the Tom's
Distributorship. Further, during the term of this Agreement, Distributor
agrees that neither Distributor nor any shareholder, partner, member or other
person or entity having an ownership interest in Distributor or the Tom's
Distributorship shall be employed by or have any interest in any direct
competitor of Tom's, or any subsidiary, division or affiliate of such
competitor. The preceding sentence shall not apply to an ownership interest of
less than a one percent (1%) beneficial interest in the outstanding equity
securities of any such publicly held competitor.
P. Distributor shall market, promote, sell and distribute Products
throughout all regions or portions of the Area and through all authorized
channels of distribution, therefore:
(1) In the event Tom's determines that there is an Underdeveloped Area,
then, in such event, Tom's shall give Distributor written notice thereof.
Thereafter Tom's and Distributor shall have a twenty (20) day period to
formulate a mutually agreeable plan to develop the Underdeveloped Area. Should
Tom's and Distributor be unable to formulate such a plan, then, notwithstanding
any provision contained herein to the contrary, Tom's may, at its option,
exercisable within twenty-five (25) days of the end of said twenty (20) day
period, purchase and Distributor shall sell Distributor's business and all or a
portion (as Tom's may choose) of the Distributor's Assets and National Account
Assets located in the Underdeveloped Area upon the following terms, to-wit:
(a) OTC. Tom's shall pay to Distributor for the purchase of such
Distributor's Assets and National Account Assets located within the
Underdeveloped Area an amount equal to five percent (5%) of Distributor's
annual gross over-the-counter sales of Products and Affiliated Products within
the Underdeveloped Area over the preceding twelve (12) month period, as such
sales are shown upon Distributor's financial statements verified under oath by
Distributor to be true and correct, plus the fair market value of any physical
assets being purchased as mutually agreed to by Tom's and Distributor.
Over-the-counter sales shall mean sales to customers for Distributor's own
account as described in Section II.A.(2) above.
(b) Vending. Tom's shall pay to Distributor for the purchase of such
Distributor's Assets and National Account Assets located within the
Underdeveloped Area an amount equal to seven percent (7%) of Distributor's
annual gross vending sales of the Products and Affiliated Products within the
Underdeveloped Area over the preceding twelve (12) month period, as such sales
are shown upon Distributor's financial statements verified under oath by
Distributor to be true and correct, plus the fair market value of any physical
assets being purchased as mutually agreed to by Tom's and Distributor. Vending
sales shall mean sales through Vending Machines as described in Section
II.A.(1) above.
(c) National Accounts Excluded. For the purposes of this Section,
Distributor's annual gross over-the-counter and vending sales shall not include
sales or deliveries to National Accounts unless such sales or deliveries are
made pursuant to Section VI.N. hereof.
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(d) Appraiser. If Tom's and Distributor cannot agree on a fair
market value as referenced in subsections V.P.(1)(a) and (b) above within
thirty (30) days of Tom's giving notice of the exercise of its rights under
this Section V.P., then an independent appraiser shall be designated by Tom's
and his determination of the fair market value of such assets shall be final
and binding.
(e) Closing. In the event Tom's exercises its option to purchase as
described above, the closing of such purchase shall occur within forty-five
(45) days (or sooner as Tom's may choose) of such exercise. During said
forty-five (45) day period Tom's may perform its due diligence which shall
include, but not be limited to, a review of the items set forth in paragraph C
of Appendix E and an analysis of the market within the Area.
(2) In all respects under this Section V.P., including, without
limitation, the exercise of Tom's rights hereunder, Tom's agrees as follows:
(i) to act in good faith; and (ii) if Tom's elects to exercise its right to
purchase said assets, it may do so no more than once in any consecutive twelve
(12) month period.
(3) In the event Tom's purchases Distributor's business and assets in
the Underdeveloped Area as described above, Distributor shall have no further
rights or interest in and to the Underdeveloped Area and the Area shall be
redrawn and redefined by Tom's to exclude the Underdeveloped Area and Appendix
B to this Agreement shall be amended accordingly. In such event, Tom's may,
itself or through others, by or through any means, method or technique, sell
and distribute Products and Affiliated Products within the Underdeveloped Area.
Distributor agrees to convey to Tom's any assets purchased pursuant to this
Section V.P. free and clear of all liens and encumbrances and agrees to execute
all documents Tom's deems necessary to convey such title to Tom's.
(4) The rights and remedies provided Tom's under this Section V.P. are
in addition to and not in lieu of any other rights or remedies available to
Tom's hereunder, including without limitation, any such rights and remedies
provided under Section X. hereof.
(5) For the purposes of this Section V.P., the term "fair market value"
shall mean the amount at which the above physical assets would change hands
between a willing buyer and a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of the relevant
facts.
VI. DELIVERY AGENT
Distributor agrees that in addition to any other duties and obligations
contained in this Agreement, Distributor will serve as the non-exclusive
Delivery Agent for Tom's within the Area. As the Delivery Agent, Distributor
agrees:
A. to hold on consignment for Tom's Consigned Inventory;
B. Tom's has advanced to Distributor the amount of $___________________
("National Account Advance"). Distributor will order, on behalf of Tom's,
Consigned Inventory of the value of said amount and will hold the same on
consignment for Tom's. Distributor agrees that if at any time during the term
of this Agreement, Tom's determines that the Consigned Inventory or National
Account Advance is insufficient or exceeds that which is necessary to provide
Adequate Service, then Distributor shall, as the case may be, accept additional
Consigned Inventory or National Account Advance or return such excess or its
National Account Advance equivalent to Tom's within fifteen (15) days of notice
from Toms;
C. to deliver Consigned Inventory to National Accounts situated within the
Area with only the special and limited powers, duties and authorities
specifically and expressly set forth in this Section VI. Tom's will notify
Distributor in writing as to the names and locations of the National Accounts;
D. to deliver Consigned Inventory at such times and in such manner as may
be requested by the National Accounts and Tom's ("Adequate Service"), and to
order from Tom's additional Consigned Inventory to replenish that which was
delivered to the National Accounts;
E. all sales to National Accounts shall be sales directly between Tom's and
the National Accounts. The proceeds of all such sales shall belong to and be
the property of Tom's and all collections and credit risks from such sales
shall likewise be the responsibility of or borne by Tom's;
F. to use such delivery tickets, credit tickets, price lists, software, and
computer interfaces as may be deemed necessary by Tom's for Distributor to
perform its duties as Delivery Agent in accordance with the terms
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of this Agreement. Distributor agrees to submit such delivery tickets, credit
tickets, other documentation or electronic or computer data to Tom's within
seven (7) days of the date of such tickets, documentation, or data or sooner if
Tom's so directs. Distributor agrees to perform its duties as Delivery Agent
in accordance with the terms, policies and procedures of Tom's relating to
Delivery Agents and National Accounts which terms, policies and procedures may
be unilaterally amended by Tom's from time to time and at any time during the
term hereof, upon thirty (30) days prior written notice by Tom's;
G. at any reasonable time, authorized representatives of Tom's shall have
the right to enter and inspect the Warehouse to enable Tom's to inspect and
verify the Consigned Inventory;
H. Tom's will pay to Distributor the Delivery Fee as provided in Appendix F
attached hereto and made a part hereof. Appendix F may be unilaterally amended
by Tom's from time to time and at any time during the term of this Agreement,
upon thirty (30) days prior written notice from Tom's;
I. Tom's will furnish, at its expense, all display equipment and other
equipment needed for or requested by National Accounts, and that such display
equipment and other equipment so furnished shall be owned by Tom's and held by
Distributor for Tom's.
J. all expenses for office, clerical, warehousing, returns and allowances
for Consigned Inventory and delivery costs incurred by the Distributor as
Delivery Agent, will be solely the responsibility of Distributor. Distributor
will prepare on behalf of Tom's all property tax returns for the Consigned
Inventory and equipment held by Distributor for Tom's. Within a reasonable
time prior to the filing date, Distributor will forward such returns to Tom's
for review. Distributor will also obtain each license required of it as a
Delivery Agent and bill Tom's, together with proper documentation, for the
expense of obtaining such license;
K. upon Tom's request, Distributor will prepare a listing or accounting of
the Consigned Inventory, in form and in such detail as Tom's may require.
Distributor agrees to furnish the listing or inventory to Tom's within ten (10)
days of Tom's request. Should Distributor fail to comply with any request by
Tom's to provide this listing or inventory of Consigned Inventory, in addition
to any other rights of Tom's under this Agreement, Distributor agrees that
Tom's may at any time have access to the Warehouse to specifically identify the
Consigned Inventory. Distributor agrees that Tom's identification of the
Consigned Inventory shall be final and binding upon Distributor;
L. the Consigned Inventory may from time to time change in specifics, but
the ownership, title and interest of Tom's therein shall remain in effect. The
ownership, title and interest of Tom's shall continue in the Consigned
Inventory ordered by Distributor to replenish the same as it is delivered to
National Accounts. The Consigned Inventory shall remain the property of Tom's,
and Tom's shall hold the title thereto until delivered to the National
Accounts, with all risk of loss, other than returns and allowances, to be borne
by Tom's, except that the Distributor will be fully responsible for losses due
to the willful and negligent acts of Distributor. In the event of loss, if
Consigned Inventory is commingled by Distributor with Distributor's inventory
of Products and Affiliated Products, then the loss shall be shared pro rata by
Tom's and Distributor based on total inventory owned by each at the Warehouse;
M. only Consigned Inventory shall be delivered pursuant to this Section VI.
and that Distributor will certify to this effect on every delivery ticket or
other proof of delivery submitted to Tom's by Distributor;
N. with Tom's prior consent which consent will not be unreasonably
withheld, Distributor shall have the right to solicit the National Accounts'
locations located within the Area and to sell the same for Distributor's own
account;
O. Tom's makes no representation, warranty or guarantee with regard to the
level of business Tom's may or may not have or do with any National Account.
Further, Distributor acknowledges and agrees that Tom's has no obligation
whatsoever to Distributor to increase or grow the Tom's business with any
National Accounts, to maintain any level of business with any National Account,
or to pay "greens fees", slotting allowances or other similar charges or fees
to any National Account;
P. failure by Distributor to provide Adequate Service to any National
Account constitutes a default under this Agreement, and Tom's, in addition to
any other right or remedy provided it hereunder, shall have the right
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immediately to make other arrangements for service to that National Account
without notice and without any liability to Distributor whatsoever, and
Distributor shall have no further rights or obligations relating to that
National Account;
Q. within fifteen (15) days of the termination or expiration of this
Agreement, Distributor will return to Tom's, at Distributor's expenses, all
Consigned Inventory or pay to Tom's in cash the National Account Advance,
whichever is greater. Further, within said fifteen (15) day period,
Distributor agrees to return to Tom's, at Distributor's expense, all Tom's
display equipment not located in a National Account's location.
VII. CONFIDENTIAL INFORMATION
During the term of this Agreement and during all times following
termination or expiration of this Agreement, Distributor shall not communicate,
divulge or use for the benefit of any other person, entity, partnership,
association, or corporation any confidential information, knowledge, or
know-how concerning Tom's, the operation of Tom's or the Tom's Distributorship
which may be communicated to Distributor or of which Distributor may be
apprised by virtue of Distributor's operation under the terms of this
Agreement, or any agreements or dealings between Distributor and Tom's,
including without limitation, any computer software that Tom's may develop,
marketing plans and programs, pricing policies, promotions, financing and
credit policies, and sales strategies and plans.
VIII. INSURANCE
Distributor shall procure, prior to the commencement of any operations
under this Agreement, and shall maintain in full force and effect at all times
during the term of this Agreement, at Distributor's expense, an insurance
policy or policies for the benefit of Distributor and Tom's, as may be
specified in Appendix D attached to this Agreement and made a part hereof which
may be unilaterally amended from time to time by Tom's. Upon request,
Distributor shall provide Tom's with evidence that such insurance has been
obtained.
IX. TRANSFER OF INTEREST
A. Tom's shall have the right to transfer or assign all or any part of its
rights or obligations under this Agreement to any person or legal entity.
B. Distributor understands and acknowledges that the rights and duties set
forth in this Agreement are personal to Distributor, and that Tom's has granted
the rights hereunder in reliance on the business skill, financial capacity and
personal character of Distributor or the owners of Distributor. Accordingly,
neither Distributor, nor any Principal Shareholder or Principal Partner, nor
any individual, partnership, corporation, or other legal entity which directly
or indirectly owns any interest in the Tom's Distributorship shall sell,
assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber
any direct or indirect interest in the Tom's Distributorship (including,
without limitation, any direct or indirect interest in a Distributor that is a
corporation, partnership or other business entity), or any right, obligation or
interest in or under this Agreement or in a substantial portion of the assets
of the Tom's Distributorship (a "Transfer"), without the prior written consent
of Tom's which will not be unreasonably withheld. Any purported Transfer by
operation of law or otherwise, not having the written consent of Tom's required
by this Section IX.B. shall be null and void and shall constitute a material
breach of this Agreement, for which Tom's may then terminate without
opportunity to cure pursuant to Section X.B.(3) of this Agreement.
Tom's may, in its sole discretion, condition its consent to a Transfer
upon the fulfillment of certain requirements, contingencies and conditions,
including without limitation, the requirements that the prospective purchaser
be adequately capitalized as described in Appendix E and the transferor
executes a general release of Tom's in form satisfactory to Tom's. Said
requirements, contingencies and conditions shall be established by Tom's, and
may be unilaterally changed by Tom's from time to time and at any time. Said
requirements, contingencies and conditions will be uniformly applied and
consistently enforced for all Tom's distributors. Distributor may obtain a
copy of such requirements, contingencies and conditions upon written request of
Tom's.
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C. Any party holding any direct or indirect interest in Distributor or the
Tom's Distributorship and who desires to accept any bona fide, arm's length
offer from a third party to purchase all or any part of such interest shall
notify Tom's in writing of each such offer, and shall provide information and
documentation relating to the offer as Tom's may require, including without
limitation, such information as shown on and described in Appendix E to this
Agreement. Tom's shall have the right and option, exercisable within thirty
(30) days after receipt of such written notification and documentation, to
purchase the seller's interests on the same terms and conditions offered by the
third party. In the event Tom's elects to exercise such right and option,
Tom's shall notify Distributor of such election in writing within said thirty
(30) day period. If the terms and consideration offered by a third party are
such that Tom's may not reasonably be required to furnish the same terms and
consideration, then Tom's may purchase the interest proposed to be sold for the
reasonable equivalent. If the parties cannot agree, within a reasonable time,
on the reasonable equivalent, an independent appraiser shall be designated by
Tom's, and his determination of a reasonable equivalent shall be binding. In
the event that Tom's elects to purchase the seller's interest, Tom's may
immediately begin its due diligence process which shall include, but not be
limited to, a review of the items set forth in paragraph C of Appendix E and an
analysis of the market within this Area. The due diligence process and closing
on such purchase must occur within forty-five (45) days (unless sooner as Tom's
chooses) from the date of notice to the seller of the election to purchase by
Tom's. Any material change in the terms of any offer prior to closing shall
constitute a new offer subject to the same rights of first refusal by Tom's as
in the case of an initial offer. Should Tom's not exercise its option to
purchase, such failure to exercise shall not affect Tom's rights under Section
IX.B. hereof, which rights are specifically reserved nor shall such failure to
exercise be deemed or considered to constitute Tom's consent to or approval of
the Transfer. In the event Tom's does not exercise its right of first refusal,
does not consent to the Transfer and Distributor indicates a desire to
consummate the Transfer, then in such event Tom's may, itself or through
others, at any time before or after the Transfer, at its sole option and
without any liability to Distributor whatsoever, enter the Area and compete
with Distributor by, among other things, marketing, selling and distributing
Products and Affiliated Products through the same methods of distribution as
used by Distributor.
D. (1) In the event of (i) a Transfer, whether or not Tom's consented
thereto, (ii) termination or expiration of this Agreement for any reason, or
(iii) a renewal of this Agreement, Distributor agrees to pay to Tom's the
Deferred Licensing Fee. The Deferred Licensing Fee shall be equal to two and
one-half percent (2.5%) of "total purchases" (as defined in Section V.B.(2))
over the preceding twelve (12) month period. Notwithstanding the preceding
sentence, any Deferred Licensing Fee paid upon renewal of this Agreement,
subsequent to the first renewal following the initial term of this Agreement,
shall be equal to two and one-half percent (2.5%) of the increment or increase
in "total purchases" (as defined in Section V.B.(2)) for the applicable
preceding twelve (12) month period over the "total purchases" (as defined in
Section V.B.(2)) used in calculating the Deferred Licensing Fee at the end of
the previous term. With regard to a Transfer, the Deferred Licensing Fee shall
be prorated in accordance with the percentage of interest, assets or value of
the Tom's Distributorship so transferred. However, if the Transfer, whether
taken separately or in combination with any other Transfer, conveys or
transfers more than fifty percent (50%) of the ownership interest in the
Distributor, effective controlling interest of the Distributor, or a
substantial portion of the assets of the Tom's Distributorship, then the full
Deferred Licensing Fee shall be due and payable. The calculation of the
Deferred Licensing Fee and the determination of whether a full Deferred
Licensing Fee is due shall be made exclusively by Toms, and such calculation
and determination shall be binding upon Distributor. The Deferred Licensing
Fee shall be paid in cash at or before the consummation of such Transfer, the
effective date of expiration or termination or renewal.
(2) In the event of a Transfer, whether or not Tom's consented thereto,
in addition to the Deferred Licensing Fee, Distributor agrees to pay to Tom's a
non-refundable "Transfer Fee" equal to $1,500.00, which shall be payable in
cash contemporaneously with or prior to the consummation of such Transfer.
E. In the event that a Principal Shareholder or Principal Partner of
Distributor transfers any part of said Principal Shareholder's or Principal
Partner's interest in Distributor or the Tom's Distributorship pursuant to
Section IX. hereof, Tom's may require Distributor to designate a new Principal
Shareholder or Principal Partner
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of Distributor, subject to the prior approval of Tom's, who shall thereupon
execute an agreement to be personally bound by the terms and provisions of this
Agreement.
X. DEFAULT AND TERMINATION
A. TERMINATION WITHOUT NOTICE. Distributor shall be in default under the
Agreement, and all rights granted herein shall automatically terminate without
notice to Distributor:
(1) If Distributor shall become insolvent or make a general assignment for
the benefit of creditors;
(2) If a petition in bankruptcy is filed by Distributor or such a petition
is filed against and not opposed by Distributor;
(3) If Distributor is adjudicated as bankrupt or insolvent;
(4) If a bill in equity or other proceeding for the appointment of a
receiver of Distributor or other custodian for Distributor's business or assets
is filed and consented to by Distributor;
(5) If a receiver or other custodian (permanent or temporary) of
Distributor's Assets or other property, or any part thereof, is appointed by
any court of competent jurisdiction;
(6) If proceedings for a composition with creditors under any state or
federal law should be instituted by or against Distributor;
(7) If a final judgment remains unsatisfied or of record for ninety (90)
days or longer (unless a supersedeas bond is filed);
(8) If Distributor is dissolved;
(9) If execution is levied against Distributor's business or property;
(10) If suit to foreclose any lien or mortgage against Distributor's
Warehouse, vehicles, or other equipment is instituted against Distributor and
not dismissed within ninety (90) days;
(11) If the real or personal property of Distributor shall be sold by levy
thereupon by any sheriff, marshal or constable.
B. OPTION TO TERMINATE. Distributor shall be deemed to be in default and
Tom's, at its option, may terminate this Agreement and all rights granted
hereunder, without affording Distributor any opportunity to cure the default,
effective immediately upon mailing of notice to Distributor, upon the
occurrence of any of the following events:
(1) If Distributor at any time ceases to operate or otherwise abandons all
or a portion of the Tom's Distributorship, or otherwise abandons or forfeits
the right to do or transact business in all or any portion of the Area;
(2) If Distributor or a Principal Partner or Principal Shareholder is
convicted of a felony or any crime involving moral turpitude;
(3) If Distributor or any partner or shareholder of Distributor or
Distributor's personal representative purports to transfer any rights or
obligations under this Agreement or any interest in Distributor of the Tom's
Distributorship to any third party without Tom's prior written consent;
(4) If Distributor, after curing a default pursuant to Section X.C.
hereof, commits the same default again, whether or not cured after notice;
(5) If Distributor repeatedly is in default under Section X.C. hereof for
failure to comply with any of the requirements imposed by this Agreement
whether or not cured after notice;
(6) If Distributor is an individual, upon the death of Distributor, and if
Distributor is a partnership, corporation or other business entity, upon the
death of the Principal Partner or Principal Shareholder;
(7) If Distributor defaults under the provisions of Section V.B.(3) of
this Agreement;
(8) If Distributor makes a false statement or misrepresentation to Tom's
or if Distributor defrauds, cheats or deceives Tom's in connection with or
relating in any way to the Tom's Distributorship;
(9) If Distributor defaults under any other agreement or account between
Distributor and Tom's, whether now or hereafter existing;
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(10) If Distributor, in Tom's sole opinion, after initiating a remedy or
acceptable plan to cure a default under Section X.C. hereof, abandons or
otherwise fails to diligently pursue to completion such remedy or plan;
(11) If Distributor fails to submit, in a timely manner, delivery tickets,
credit tickets, other documentation or electronic or computer data to Tom's
which is required of Distributor as the Delivery Agent; or
(12) If Distributor, in Tom's sole discretion, is converting the Tom's
Distributorship to a non-Tom's distributorship or is removing and replacing
Products from the Tom's Distributorship with products or other merchandise not
authorized under Section II.A.
C. TERMINATION AFTER NOTICE OF DEFAULT; TIME TO CURE. Except as (i)
provided in Section X.A. and X.B. of this Agreement, (ii) provided by
applicable law, (iii) to the payment of any obligations or indebtedness to
Tom's, or to any other person or entity as hereinafter described, and (iv) to
the failure to provide Adequate Service to National Accounts or customers of
Distributor, upon any default by Distributor, Tom's may terminate this
Agreement by giving written notice of termination stating the nature of such
default to Distributor at least thirty (30) days prior to the effective date of
termination; provided, however, that Distributor may avoid termination by
curing such default to Tom's satisfaction within thirty (30) days of the date
of said written notice. If the default is of a nature that the same cannot
reasonably be cured within thirty (30) days, then Distributor may avoid
termination by immediately initiating a plan or remedy to cure such default
within thirty (30) days of said written notice and diligently pursuing and
completing such cure to Tom's satisfaction and providing proof thereof within a
reasonable period after said written notice not to exceed ninety (90) days. If
the default is not cured within thirty (30) days or any such plan or remedy to
cure is not initiated or not diligently pursued and completed within the
specified time or such longer period as may be agreed or as applicable law may
require, and this Agreement has not been terminated pursuant to Section
X.B.(10) above, then this Agreement shall terminate without further notice to
Distributor effective immediately upon the expiration of the thirty (30) day or
ninety (90) day period as applicable.
As to the payment of any obligations or indebtedness owed by Distributor
to Tom's or to any other person or entity if Tom's is a guarantor or
contingently liable on Distributor's obligations to such other person or
entity, or as to the failure of Distributor to provide Adequate Service to
National Accounts or customers of Distributor, Tom's shall give Distributor
written notice of any failure to pay promptly any such obligation or
indebtedness or provide Adequate Service and should Distributor fail to pay the
same or correct such inadequate service within ten (10) days of the date of
such notice, all sums owed by Distributor to Tom's shall, at Tom's option, be
due and payable without any further notice and/or Tom's shall have the option
to terminate this Agreement without further notice to Distributor.
XI. OBLIGATIONS UPON TERMINATION OR EXPIRATION
Upon termination or expiration of this Agreement, all rights granted
hereunder to Distributor shall immediately terminate, and Distributor and Tom's
agree as follows:
A. Distributor shall immediately cease to operate the Tom's Distributorship
and shall not thereafter, directly or indirectly, represent to the public or
hold himself or itself out as a present or former Distributor of Tom's.
B. Distributor shall immediately (i) permanently cease to use, in any
manner whatsoever, the Proprietary Marks; (ii) return and deliver to Tom's any
advertising, promotional, or merchandising materials and any other documents
containing the Proprietary Marks; and (iii) because Distributor's customer and
Vending Machine locations were/are acquired in large part by the effect of
goodwill associated with the Proprietary Marks and the Products, release and
relinquish all rights to said locations, and shall convey the same to Tom's in
accordance with Sections XI.E. and XI.F. Upon expiration or termination of
this Agreement Tom's itself or its designees shall have the right immediately
to sell and distribute Products and Affiliated Products within the Area by any
methods of distribution. Further, within thirty (30) days after the expiration
or termination of this Agreement,
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Distributor shall remove the Proprietary Marks from any truck, vehicle, Vending
Machine, or other equipment not purchased by Tom's or an approved third party
as provided herein.
C. Within ten (10) days after the effective date of termination or
expiration of this Agreement, Distributor shall pay in full all sums owing to
Tom's and to any other person or entity if Tom's is a guarantor or contingently
liable on Distributor's obligations to such other person or entity, whether or
not the same are current or due. In the event of termination for any default
of Distributor, such sums shall include all damages, costs, and expenses,
including reasonable attorneys' fees, incurred by Tom's as result of the
default, which obligation shall give rise to and remain, until paid in full, a
lien in favor of Tom's against the Warehouse, and any and all personal
property, vehicles, equipment, fixtures, and inventory owned by Distributor at
the time of default.
D. Tom's shall have the option, exercisable within fifteen (15) days after
the effective date of termination or expiration of this Agreement, to purchase
from Distributor and Distributor shall sell to Tom's all usable, current dated
Products owned by Distributor, at Distributor's net cost, and Distributor shall
destroy all out-of-code-date and broken lots of Products (including Products
without sufficient remaining shelf life to afford salability) then owned by
Distributor.
E. Tom's shall have the option, to be exercised within forty-five (45) days
after termination or expiration of this Agreement (or sooner at Tom's option),
to purchase from Distributor and Distributor shall sell to Tom's all or a
portion (as Tom's may choose) of Distributor's Vending Machines, customer and
Vending Machine locations and lists, vehicles, equipment, fixtures, supplies,
parts, cash, general intangibles, accounts, documents, instruments, furniture,
furnishings and other assets which are used in the operation of the Tom's
Distributorship (excluding real estate), (these assets together with the assets
described in Section XI.D. above are herein referred to as "Distributor's
Assets"), at fair market value as provided in Appendix E. Distributor
acknowledges that the value of the Tom's Distributorship and/or its assets and
the ability to secure customer and Vending Machine locations are due in large
part to the goodwill created by Tom's. Distributor and Tom's agree that for
the purposes of this Section XI., fair market value as determined in Appendix
E, shall not include any value for (i) goodwill, (ii) Distributor's right or
license to sell and distribute Products, if any, and (iii) any sales and
deliveries to National Accounts except for such sales and deliveries made
pursuant to Section VI.N. hereof. Further, immediately upon Tom's exercising
its option to purchase as described above, Distributor agrees that Tom's may
begin its due diligence process which shall include, but not be limited to, a
review of the items set forth in paragraph C of Appendix E and an analysis of
the market within the Area.
F. With respect to Distributor's Assets and the National Account Assets
which are subject to Tom's option or obligation to purchase as described in
Sections XI.D., XI.E., XI.H. and other sections of this Agreement, Distributor
shall convey such assets to Tom's free and clear of all liens and encumbrances,
except for such liens as Tom's may agree in writing to take subject to or
assume, and Distributor shall execute any and all documents necessary to convey
such assets to Tom's. Further, the closing of the sale of Distributor's Assets
and National Account Assets as described herein shall occur within forty-five
(45) days (or sooner as Tom's may choose) of Tom's exercise of its option to
purchase or the completion of its due diligence process, whichever is last to
occur.
G. Notwithstanding any provision in this Agreement to the contrary,
Distributor's obligation to sell to Tom's as provided herein shall be subject
to or limited by Distributor's right to sell, within the applicable time
periods, the Tom's Distributorship or applicable portion thereof or the
applicable assets to a third party at a price higher than that which is
provided for in Appendix E. Provided, however, Distributor's right to sell to
such third party shall not delay Tom's exercise of its option to purchase and
shall be subject to and limited by the provisions of Section IX.B. and Section
IX.C. hereof, regardless of whether Distributor's sale takes place during or
after the term of this Agreement.
H. In the event Tom's is obligated or exercises an option to purchase
Distributor's Assets as provided herein, and there are certain of Distributor's
Assets to be purchased which are used by Distributor exclusively in the
performance of Distributor's duties as Delivery Agent ("National Account
Assets"), then in such event, and provided Distributor can demonstrate and
prove to Tom's satisfaction the existence of the National Account Assets, Tom's
shall purchase and Distributor shall sell to Tom's the National Account Assets
at a value as
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mutually agreed to by Tom's and Distributor. If Tom's and Distributor cannot
agree on a value for the National Account Assets within thirty (30) days of
Tom's exercise of its option to purchase or of Tom's obligation to purchase, as
applicable, then an independent appraiser shall be designated by Tom's and his
determination of the value of the National Account Assets shall be final and
binding.
I. Distributor acknowledges that if this Agreement is terminated due to
Distributor's default, then such default and termination shall injure and cause
damage to Tom's and Tom's reputation and goodwill. Consequently, Distributor
shall be liable to Tom's and shall reimburse Tom's for any such injury or
damage, including without limitation, all costs and expenses incurred by Tom's
in recapturing and redeveloping the market within the Area, and lost profits of
Tom's.
J. Neither party to this Agreement nor their officers, directors,
shareholders or employees shall make or publish any derogatory, disparaging,
discrediting or harmful comment regarding the other.
XII. COVENANTS
A. Distributor specifically acknowledges that, pursuant to this Agreement,
Distributor will receive valuable confidential information, including, without
limitation, information regarding the operations, sales, promotional and
marketing methods and techniques of Tom's and Tom's distributors. Distributor
covenants that during the term of this Agreement and for a period of two (2)
years following the termination or expiration thereof for any reason,
Distributor, either directly or indirectly, for Distributor's self, or through,
on behalf of, or in conjunction with any person or legal entity, shall not
engage in or have any interest in any business engaged in the sale or
distribution of prepackaged, ready-to-eat snack-food products to customers
within the Area other than the Tom's Distributorship.
B. Distributor expressly agrees that the existence of any claims it may
have against Tom's, whether or not arising from this Agreement, shall not
constitute a defense to the enforcement by Tom's of the covenant set out in
this Section XII. Distributor agrees to pay all costs and expenses (including
without limitation reasonable attorneys' fees) incurred by Tom's in connection
with the enforcement of this Section XII.
C. Distributor understands and acknowledges that Tom's shall have the
right, in its sole discretion, to reduce the scope of any covenant set out in
this section, or any portion thereof, without Distributor's consent, effective
immediately upon mailing of notice to Distributor; and Distributor agrees that
Distributor shall comply forthwith with any covenant as so modified, which
shall be fully enforceable.
D. Distributor acknowledges that Distributor's violation of the terms of
this Section XII. would result in irreparable injury to Tom's for which no
adequate remedy at law may be available. Distributor and Tom's acknowledge and
agree that the provisions of the above covenants not to compete pertaining to
scope, term, duration and geographic area are reasonable. Should a court of
competent jurisdiction determine otherwise, Distributor agrees that the
provisions hereof relating to the scope, term, duration and geographic area
shall be enforceable against him to the maximum time and greatest geographical
area allowable under applicable law.
E. At Tom's request, Distributor shall require and obtain execution of
covenants similar to those set forth in this Section XII. from any or all
principals, managers, officers, directors, shareholders, partners (general or
limited) and members of the Distributor. Every covenant required by this
subsection shall be in a form satisfactory to Tom's. Failure by Distributor to
obtain execution of a covenant required by this subsection shall constitute a
default under Section X.C. of this Agreement.
XIII. PROPRIETARY MARKS
Tom's and Distributor acknowledge and agree:
A. Tom's is the sole owner of all right, title and interest in and to the
Proprietary Marks and all goodwill associated with and symbolized by the same.
The value of the Tom's Distributorship and the ability to secure Vending
Machine and customer locations are due in large part to the public's acceptance
of the goodwill created by the Proprietary Marks and the Products, and Tom's
efforts to support, promote and enhance the same. Distributor is granted a
non-exclusive license to use the Proprietary Marks as authorized herein, but
Distributor's
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use of the same does not give Distributor any ownership interest or other
interest in said Proprietary Marks, and all goodwill arising therefrom inures
solely to Tom's.
B. In the event that litigation involving the Proprietary Marks is
instituted or threatened against Distributor, Distributor shall provide prompt
written notice and tender the complete defense and handling of any such suit to
Tom's. Distributor shall cooperate fully with Tom's in defending or settling
such litigation and shall execute any and all documents and do such acts and
things as may be necessary, in the opinion of counsel for Tom's, to carry on or
settle such litigation.
C. (1) Distributor shall use only the Proprietary Marks and shall use the
same only for the sale and distribution of the Products or as otherwise
authorized by Tom's. Any unauthorized use of the Proprietary Marks shall
constitute an infringement of Tom's rights and a default hereunder.
(2) Distributor shall identify Distributor as the owner of the Tom's
Distributorship in conjunction with any use of the Proprietary Marks, shall not
use the Proprietary Marks as part of Distributor's corporate or other legal
name nor use the same to incur any obligation or indebtedness on behalf of
Tom's.
(3) Distributor shall exhibit the Tom's decal and use Tom's distinctive
coloring schemes on Distributor's trucks and on the Vending Machines in
accordance with Tom's then-current specifications. Tom's may unilaterally from
time to time and at any time, change such specifications and Distributor agrees
to comply with such changes.
(4) Distributor shall not carry, transport nor haul on, from or by
Distributor's trucks used in furtherance of this Agreement nor sell from such
trucks or Vending Machines any merchandise, products or personal property of
any kind (nor carry on or operate from such trucks any other business or
commercial activity) except as provided in Section II. of this Agreement.
D. The license to use the Proprietary Marks is personal to Distributor and
may not be transferred or assigned by Distributor without the prior written
consent of Tom's. Said license is non-exclusive, and Tom's retains the right,
among others, (i) to use the Proprietary Marks itself in connection with
selling and distributing Products, other merchandise and services, and (ii) to
grant other licenses for the Proprietary Marks in addition to the licenses
already granted, and to use other proprietary marks.
XIV. INDEPENDENT CONTRACTOR; INDEMNIFICATION
A. It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them; that Distributor shall
be an independent contractor; and that nothing in this Agreement is intended to
constitute either party a legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever.
B. During the term of this Agreement and any extensions hereof,
Distributor shall hold itself out to the public as an independent contractor
operating the business pursuant to this Agreement. Distributor agrees to take
such action as may be necessary, including, without limitation, exhibiting a
notice of that fact in a conspicuous place in the Warehouse and on
Distributor's vehicles, the content of which Tom's reserves the right to
specify. Tom's will accept such notice in substantially the following form:
"Owned and operated by ___________, an independent contractor."
C. It is understood and agreed that nothing in this Agreement authorizes
Distributor to make any contract, agreement, warranty, or representation on
Tom's behalf, or to incur any debt or other obligation in Tom's name; and that
Tom's shall in no event assume liability for, or be deemed liable hereunder as
result of, any such action; nor shall Tom's be liable by reason of any act or
omission of Distributor in Distributor's conduct of the Tom's Distributorship
or for any claim or judgment arising therefrom against Distributor or Tom's.
D. Distributor shall be responsible for the hiring, compensation,
termination and all other matters relating to any persons or entities employed
or contracted by the Distributor to perform the Distributor's duties and
functions under this Agreement and Distributor shall, with respect to all such
persons or entities, perform all obligations and discharge all liabilities
imposed upon employers under labor, wage-hour, worker's compensation,
unemployment compensation or insurance, social security and other federal,
state and local laws and regulations.
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E. Distributor shall indemnify and hold Tom's, and Tom's officers,
directors, shareholders, and employees in their corporate and individual
capacities, harmless against any and all losses, expenses, damages, injuries,
judgments, claims, liabilities, attorney's fees, and litigation expenses
arising directly or indirectly from, as a result of, or in connection with
Distributor's operation of the Tom's Distributorship, including, without
limitation, that which arises from a proposed assessment or assessment of
employment taxes against Tom's in connection with the services performed by
Distributor or arising out of or relating to the employment relationship
between Distributor and its employees, agents or subcontractors performing
services on behalf of Distributor.
XV. WARRANTIES AND WAIVERS
A. Tom's makes no warranties or guarantees upon which Distributor may
rely, and assumes no liability or obligation to Distributor, by providing any
waiver, approval, consent, or suggestion to Distributor in connection with this
Agreement, or by reason of any neglect, delay, or denial of any request
therefor.
B. No delay, waiver, omission, or forbearance on the part of Tom's to
exercise any right, option, duty or power arising out of any breach or default
by Distributor under any of the terms, provisions, covenants, or conditions
hereof, shall constitute a waiver by Tom's to enforce any such right, option,
duty, or power as against Distributor, or as to subsequent breach or default by
Distributor. Acceptance by Tom's of any payments due to it hereunder shall not
be deemed to be a waiver by Tom's of any preceding breach by Distributor of any
terms, provisions, covenants, or conditions of this Agreement.
XVI. NOTICES
Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally delivered, mailed by certified or registered
mail, return receipt requested, or delivered by a nationally recognized
overnight carrier or courier service, to the respective parties at the
addresses shown below the parties' signatures unless and until a different
address has been designated by written notice to the other party. Any notice
sent by certified or registered mail or by overnight carrier or courier shall
be deemed to have been given at the date and time of mailing or delivery to the
overnight carrier or courier and, if personally delivered, upon delivery.
XVII. ENTIRE AGREEMENT
This Agreement, the documents referred to herein, and the Appendices
attached hereto constitute the entire, full, and complete Agreement between the
parties concerning the subject matter hereof, and supersede all prior
agreements between the parties concerning the subject matter hereof, and all
rights, if any, of either party hereto which may have arisen out of a prior
course of dealing. Except for those permitted to be made unilaterally by Tom's
hereunder, no amendment, change, or variance from this Agreement shall be
binding on the parties unless mutually agreed to by the parties in writing.
XVIII. SEVERABILITY AND CONSTRUCTION
A. Except as expressly provided to the contrary herein, each term, and/or
provision of this Agreement shall be considered severable; and if, for any
reason, any term, and/or provision herein is determined to be invalid and
contrary to, or in conflict with, any existing or future law or regulation by a
court or agency having valid jurisdiction, such shall not impair the operation
of, or have any other effect upon, such other terms, and/or provisions of this
Agreement; and the latter shall continue to be given full force and effect and
bind the parties hereto; and said invalid terms and/or provisions shall be
deemed not to be a part of this Agreement.
B. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Distributor, Tom's, Tom's officers, directors, and employees
any rights or remedies under or by reason of this Agreement.
C. Distributor expressly agrees that if a court of competent jurisdiction
determines or if, from any circumstances whatsoever, it becomes evident that
the fulfillment of any provision of this Agreement involves transcending the
limit of validity prescribed by any applicable law, then, ipso facto, the
obligation to be fulfilled
18
<PAGE> 19
shall be reduced to the limit of such validity, and such obligation shall be
valid and binding to the limit of such validity.
D. All provisions of this Agreement which, by their terms or intent, are
designed to survive the expiration or termination of this Agreement, shall so
survive.
XIX. APPLICABLE LAW; LIMITATION ON LEGAL RIGHTS;
A. This Agreement takes effect and shall be deemed entered into upon its
acceptance and execution by Tom's in Georgia, and shall be interpreted and
construed under the procedural and substantive laws thereof, which laws shall
prevail in the event of any conflict of law.
B. The Distributor agrees that any action brought by Distributor against
Tom's in any court, whether federal, state or provincial, shall be brought
within the State of Georgia in the judicial district in which Tom's has its
principal place of business, and Distributor does hereby waive all questions of
personal jurisdiction or venue for the purposes of carrying out this provision.
Distributor agrees that Tom's shall have the option either (i) to bring an
action against Distributor in any court, whether federal, state or provincial
within the State of Georgia in the judicial district in which Tom's has its
principal place of business, in which case Distributor waives all questions of
personal jurisdiction or venue for purposes of carrying out this provision; or
(ii) to bring an action against Distributor in any other court having
jurisdiction over the parties and matters involved. It is expressly agreed
between the parties hereto that the terms of this Section XIX.B. shall survive
any termination of this Agreement and the same shall be controlling with
respect to any such action arising hereunder or in connection herewith.
C. No right or remedy conferred upon or reserved to Tom's by this
Agreement is intended to be, nor shall be deemed, exclusive of any other right
or remedy of Tom's herein or by law or equity provided or permitted, but each
shall be cumulative of every other right or remedy.
XX. ACKNOWLEDGMENTS
A. Distributor acknowledges that it has conducted an independent
investigation of the business contemplated hereunder and recognizes that the
business venture contemplated by this Agreement involves business risks and
that Distributor's success will be largely dependent upon the ability of
Distributor as an independent businessperson. Tom's expressly disclaims the
making of, and Distributor acknowledges that Distributor has not received, any
warranty, representation, covenant or guarantee, express or implied, as to the
potential volume, profits, or success of the business venture contemplated by
this Agreement.
B. Distributor acknowledges that Distributor has read and understands this
Agreement, the Appendices hereto, and agreements relating hereto, if any, and
that Tom's has encouraged Distributor to consult and accorded Distributor ample
time and opportunity to consult with advisors of Distributor's own choosing
about the potential benefits and risks of entering into this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement on the day and year first above written.
TOM'S FOODS INC.
By:______________________________
Title:_______________________
Address: 900 - 8th Street
P. O. Box 60
Columbus, Georgia 31902
19
<PAGE> 20
__________________________ ________________________________________(SEAL)
Witness DISTRIBUTOR
__________________________ ________________________________________(SEAL)
Witness DISTRIBUTOR
__________________________ ________________________________________(SEAL)
Witness DISTRIBUTOR
Address:_____________________________________
_____________________________________
_____________________________________
GUARANTY
The undersigned Principal Shareholder or Principal Partner, if Distributor
is a corporation, partnership or other business entity, owns a beneficial
interest in Distributor; has read this Agreement; agrees to be individually and
personally bound by all obligations of Distributor hereunder; and agrees to
irrevocably and unconditionally guarantee the full performance of this
Agreement by Distributor and the prompt and full payment when due of any and
all amounts owed by Distributor to Tom's referenced in or provided for under
this Agreement. To enforce the liability of the undersigned hereunder, Tom's
shall not be required first to give the undersigned notice of Distributor's
default or to take any action against or to obtain or attempt to obtain any
judgment against Distributor. The undersigned acknowledges and agrees that
this Guaranty shall be governed by the laws of Georgia, and the undersigned
hereby waives any rights under O.C.G.A. Section 10-7-24.
If this Guaranty is executed by more than one person, then all of the
persons so executing agree to be jointly and severally liable for all of the
obligations and liabilities of the Principal Shareholder or Principal Partner
as provided herein.
__________________________ _____________________________________________
Witness Principal Shareholder/Principal Partner
__________________________ _____________________________________________
Witness Principal Shareholder/Principal Partner
__________________________ _____________________________________________
Witness Principal Shareholder/Principal Partner
20
<PAGE> 21
APPENDIX A
AFFILIATED PRODUCTS
<PAGE> 22
APPENDIX B
WAREHOUSE/LOCATION AND AREA
<PAGE> 23
APPENDIX C
TOM'S PRODUCT LIST
<PAGE> 24
APPENDIX D
INSURANCE
Pursuant to Section VIII. of this Agreement, Distributor shall procure and
maintain in effect the following types and amount of insurance, to-wit:
1. A vehicle liability policy with not less than the following minimum
limits:
a) Bodily injury in the amount of $500,000 each person; $1,000,000 each
accident
b) Property damage in the amount of $100,000
The bodily injury coverage may be a combination of base and umbrella
coverage, provided the combined coverage is a minimum of $500,000.
2. A comprehensive general liability policy with not less that the following
minimum limits:
a) Bodily injury in the amount of $500,000 each person; $1,000,000 each
occurrence
b) Property damage in the amount of $100,000
The bodily injury coverage may be a combination of base and umbrella
coverage, provided the combined coverage is a minimum of $500,000.
3. Workman's Compensation Insurance as required by state law.
The policy (or policies) of insurance described above must name TOM'S FOODS
INC. as an "additional insured" and you or your agent must send written
evidence of this to:
TOM'S FOODS INC.
Attention: Distributor Administration
P. O. Box 60
Columbus, GA 31902
<PAGE> 25
APPENDIX E
A. VALUATION OF THE TOM'S DISTRIBUTORSHIP AND ITS ASSETS
The fair market value of the Tom's Distributorship and its assets, shall
be equal to a multiple of 3.5 times the average annual Net Cash Flow over the
preceding three (3) years. Distributor acknowledges that the value of the
Tom's Distributorship and/or its assets and the ability to secure customer and
Vending Machine locations are due in large part to the goodwill created by
Tom's through its promotion and support of the Products and the Proprietary
Marks. Tom's will, at Tom's option, pay Distributor for the purchase of the
Tom's Distributorship or applicable assets in cash or in cash plus a promissory
note providing for deferred payments to Distributor over a period not to exceed
five (5) years. Any other specific terms with regard to the financing of Tom's
purchase shall be mutually agreeable to Tom's and Distributor.
B. ADEQUATE CAPITALIZATION OF THE TOM'S DISTRIBUTORSHIP
Absent other factors, Tom's considers 50% cash down and a current ratio
(current assets divided by current liabilities) of 2 to 1 as adequate
capitalization for the Tom's Distributorship. Any cash investment and working
capital shall be paid from the transferee's own resources and shall not be
borrowed funds.
C. INFORMATION TOM'S MAY REQUIRE IN CONNECTION WITH VALUATION OF THE TOM'S
DISTRIBUTORSHIP, ITS DUE DILIGENCE PROCESS OR THE REVIEW OF A THIRD PARTY
OFFER
1. An accurate and complete list of all of the assets of the Tom's
Distributorship to be sold (including serial numbers where applicable);
2. All of Distributor's financial statements and records for at least the
preceding three (3) years (including without limitation, federal and state
income tax returns, income statements, balance sheets and cash flow
statements); and
3. Any other information that Tom's may request (including, without
limitation, historical product mix, customer location and account lists, volume
by location or account, product mix by location, customer contracts, and
leases).
All of the above when submitted to Tom's must be verified under oath by
Distributor to be true, accurate and complete.
<PAGE> 26
APPENDIX F
DELIVERY FEE
(i) Supermarket/Mass Merchandisers. 27% of DPL less 2% discount on
Products delivered to supermarket, military and/or mass
merchandisers.
(ii) Convenience Stores. 31% of DPL less 2% discount on Products
delivered to convenience stores.
(iii) Affiliated Products. 27% of net sales price to Distributor on
Affiliated Products.
(iv) Agency Bid. 16% of DPL less 2% discount on Products delivered to
National Accounts whose business is acquired through a bidding
process (excluding military).
<PAGE> 1
Exhibit 10.9
SUBORDINATION AGREEMENT
-----------------------
THIS SUBORDINATION AGREEMENT ("Subordination Agreement") dated as of
October 14, 1997 is by and between IBJ Schroder Bank & Trust Company, a New
York banking corporation, as Trustee (the "Trustee"), and TFH Corp., a Delaware
corporation ("Junior Creditor", as hereinafter further defined). The Senior
Creditors (as hereinafter defined) and Junior Creditor are sometimes
individually referred to herein as a "Creditor" and collectively as
"Creditors".
W I T N E S S E T H:
WHEREAS, certain banking and financial institutions (the "Banks") entered
into a Second Amended and Restated Credit Agreement, dated as of May 13, 1993
(as amended, the "Bank Credit Agreement") among Tom's Foods Capital Corporation
("TFCC", as hereinafter further defined), Tom's Foods Inc. ("Tom's", as
hereinafter further defined), Canadian Imperial Bank of Commerce, as agent for
the Banks, and First Union National Bank of Georgia, as collateral safekeeping
agent and concentration bank, pursuant to which the Banks made loans and
provided other financial accommodations to Tom's and/or TFCC (individually and
collectively, "Debtor", as hereinafter further defined), which loans and other
financial accommodations were secured by certain assets and properties of
Debtor; and
WHEREAS, immediately after the execution and delivery of that certain
First Modification and Waiver Agreement, dated as of August 30, 1996, among the
Banks, the agent for the Banks and the Debtor (the "First Modification"),
Junior Creditor purchased all of the indebtedness in respect of (i) loans made
by the Banks to Debtor under the Bank Credit Agreement and related agreements,
documents and instruments, and (ii) Debtor's liability for reimbursement of
amounts drawn under and other obligations owed to the Banks or the agent for
the Banks, in connection with that certain letter of credit no. 114-88/9006 in
the face amount of $10,000,000 issued under the Bank Credit Agreement for the
account of Tom's in favor of Rowntree PLC (the "Tom's/Rowntree L/C"), all
pursuant to the terms of a Purchase and Sale Agreement, dated as of May 24,
1996, among Junior Creditor and the Banks (as amended, the "Junior Debt
Purchase Agreement"), providing for, inter alia, the assignment to Junior
Creditor of all such indebtedness owed to the Banks by Debtor, together with
all security interests and liens of the Banks in and upon any assets and
properties of Debtor; and
<PAGE> 2
-2-
WHEREAS, pursuant to the Junior Debt Purchase Agreement, Debtor was
released by the Banks and agent for the Banks from liability for, and, in
connection with the Junior Debt Purchase Agreement, Junior Creditor undertook a
direct liability to the Banks for, reimbursement of amounts drawn under the
Tom's/Rowntree L/C and other obligations to the Banks or the agent for the
Banks in connection with the Tom's/Rowntree L/C; and
WHEREAS, in connection with such purchase of indebtedness under the Junior
Debt Purchase Agreement, the stockholders of Junior Creditor, on behalf of
Junior Creditor, caused letters of credit in the aggregate face amount of
$10,580,000 (the "TFH Backup L/C's") to be issued in favor of the agent for the
Banks as security for TFH's direct liability to the Banks in connection with
the Tom's/Rowntree L/C; and
WHEREAS, the Tom's/Rowntree L/C and the TFH Backup L/C's have been
replaced by letters of credit in the aggregate face amount of $10,000,000
(together with all amendments, modifications and replacements thereof, the "New
TFH Backup L/C's") that were provided by the stockholders of Junior Creditor,
on behalf of Junior Creditor, directly to Nestle U.K. Limited, as guarantor of
the IRB's (as defined below); and
WHEREAS, Junior Creditor, TFCC and Tom's entered into a Second
Modification and Waiver Agreement, dated as of August 30, 1996, with respect to
the Bank Credit Agreement and related agreements, documents and instruments
(the "Second Modification"); and
WHEREAS, Junior Creditor and Tom's have entered into a Reimbursement
Agreement, dated as of August 30, 1996 (the "TFH Reimbursement Agreement")
setting forth Tom's obligations to reimburse TFH for amount drawn under the New
TFH Backup L/C's; and
WHEREAS, in order to (i) agree upon the terms of the subordination in
favor of Trustee of the obligations of Debtor to Junior Creditor and related
matters, and (ii) provide for the orderly sharing between Creditors, in
accordance with the subordination provisions hereof, of proceeds of such assets
and properties upon any foreclosure thereon or other disposition thereof Junior
Creditor and Trustee, on behalf of the Senior Creditors, have agreed to enter
into this Subordination Agreement; and
<PAGE> 3
-3-
WHEREAS, Tom's will, on or about the date hereof, issue its 10 1/2% Senior
Secured Notes due November 1, 2004, in the aggregate original principal amount
of $60,000,000 (the "New Senior Notes", as hereinafter further defined) under
an Indenture, dated the date hereof, between Tom's and the Trustee.
NOW THEREFORE, in consideration of the mutual benefits accruing to
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. DEFINITIONS
As used above and elsewhere in this Subordination Agreement, the following
terms shall have the meanings ascribed to them below:
1.1. "Agreements" shall mean, collectively, the Senior Creditor
Agreements and the Junior Creditor Agreement.
1.2. "Collateral" shall mean all of the property and interests in
property, real or personal, tangible or intangible, now owned or hereafter
acquired by Debtor in or upon which Senior Creditors at any time have a Lien,
and including, without limitation, all proceeds of such property and interests
in property.
1.3. "Creditors" shall mean, collectively, the Trustee and Junior
Creditor, and their respective successors and assigns.
1.4. "Debtor" shall mean, individually and collectively, Tom's and TFCC,
and references herein to Debtor shall mean each of Tom's and TFCC, and either
one or both of Tom's and TFCC.
1.5. "Junior Creditor" or "TFH" shall mean TFH Corp., a Delaware
corporation, and its successors and assigns.
1.6. "Junior Creditor Agreement" shall mean the Reimbursement Agreement.
1.7. "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Junior
Creditor and/or its affiliates or participants, arising under or in connection
with or relating to the Junior Creditor Agreement, including all principal,
<PAGE> 4
-4-
interest, charges, fees, premiums, indemnities and expenses, including
attorneys' fees, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of the Junior
Creditor Agreements or after the commencement of any case with respect to
Debtor under the U.S. Bankruptcy Code or any similar statute (and including,
without limitation, all principal, interest, fees, costs, expenses, including
attorneys' fees and other amounts, whether or not such amounts are allowable in
whole or in part, in any such case or similar proceeding), whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and whether
arising directly or by way of claim of subrogation, reimbursement,
indemnification, exoneration, contribution or otherwise, or howsoever acquired
by Junior Creditor.
1.8. "Lien" shall mean any mortgage, deed to secure debt, deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest,
encumbrance (including, but not limited to, easements, rights of way and the
like), liens (statutory or other), security agreement or transfer intended as
security, including without limitation, any conditional sale or other title
retention agreement, the interest of a lessor under a capital lease or any
financing lease having substantially the same economic effect as any of the
foregoing.
1.9. "New Senior Notes" shall mean the 10 1/2% Senior Secured Notes due
November 12004, issued on the date hereof by Tom's in the aggregate original
principal amount of $60,000,000, and any notes issued in exchange therefor,
pursuant to the Indenture, dated as of the date hereof, between Tom's and the
Trustee, together with additional such notes, not to exceed $10,000,000 in the
aggregate original principal amount, issued hereafter pursuant to such
Indenture (as in effect on the date hereof) upon the exchange of shares of
Tom's Exchangeable Preferred Stock, $0.01 par value per share, Class A.
1.10. "New TFH Backup L/C's" shall have the meaning set forth in the
Recitals hereto.
1.11. "Permitted Junior Creditor Enforcement Proceeds" shall have the
meaning set forth in Section 2.2 hereof.
1.12. "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including,
<PAGE> 5
-5-
without imitation, any corporation which elects subchapter S status under
the Internal Revenue Code of 1986, as amended), limited liability company,
limited liability partnership, business trust, unincorporated association,
joint stock company, trust, joint venture, or other entity or any government or
any agency or instrumentality or political subdivision thereof.
1.13. "Senior Creditors" shall mean the Trustee and the holders of New
Senior Notes, and their successors and assigns.
1.14. "Senior Creditor Agreements" shall mean, collectively, the
Indenture, and all notes, guaranties, security agreements, mortgages, deeds to
secure debt and deeds of trust and all other agreements, documents and
instruments at any time executed and/or delivered by Debtor or any affiliate of
Debtor, with or in favor of Trustee, on behalf of the holders of the New Senior
Notes, in connection therewith or related thereto, as all of the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.15. "Senior Debt" shall mean any and all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to the
holders of the New Senior Notes, arising under or in connection with or
relating to the Senior Creditor Agreements, including all principal, interest,
charges, fees, premiums, indemnities and expenses, including attorneys' fees,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of the Senior Creditor
Agreements or after the commencement of any case with respect to Debtor under
the U.S. Bankruptcy Code or any similar statute (and including, without
limitation, all principal, interest, fees, costs, expenses, including
attorneys' fees and other amounts, whether or not such amounts are allowable in
whole or in part in any such case or similar proceeding), whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and whether
arising directly or by way of claim of subrogation, reimbursement,
indemnification, exoneration, contribution or otherwise, or howsoever acquired
by Senior Creditor.
1.16. "TFCC" shall mean Tom's Foods Capital Corporation, a Delaware
corporation, and its successors and assigns, including, without limitation, a
receiver, trustee or debtor-
<PAGE> 6
-6-
in-possession on behalf of such person or on behalf of any such successor or
assign.
1.17. "Tom's" shall mean Tom's Foods Inc., a Delaware corporation and its
successors and assigns, including, without limitation, a receiver, trustee or
debtor-in-possession on behalf of such person or on behalf of any such
successor or assign.
1.18. All terms defined in the Uniform Commercial Code as in effect in
the State of New York, unless otherwise defined herein shall have the meanings
set forth therein. All references to any term in the plural shall include the
singular and all references to any term in the singular shall include the
plural.
2. SUBORDINATION OF JUNIOR DEBT
2.1. Subordination. Junior Creditor hereby absolutely and
unconditionally subordinates its right to payment and satisfaction of the
Junior Debt to, and the payment and satisfaction thereof, directly or
indirectly, by any means whatsoever, is hereby absolutely and unconditionally
deferred until, the prior indefeasible payment and satisfaction in full of all
Senior Debt.
2.2. Distributions.
(a) Without limiting the provisions of Section 2.1 hereof, in the event
of any distribution, division, or application, partial or complete, voluntary
or involuntary, by operation of law or otherwise, of all or any part of the
assets of Debtor or the proceeds thereof to the creditors of Debtor or
readjustment of the obligations and indebtedness of Debtor, whether by reason
of liquidation, bankruptcy, arrangement, receivership, assignment for the
benefit of creditors, marshalling of assets of Debtor or any other action or
proceeding involving the readjustment of all or any part of the indebtedness or
other obligations of Debtor or the application of the assets of Debtor to the
payment or liquidation thereof, or upon the dissolution or other winding up of
Debtor's business, or upon the sale of all or substantially all of Debtor's
assets, then, and in any such event, (i) the Senior Creditors shall first
receive indefeasible payment in full in cash of all of the Senior Debt prior to
the payment of all or any part of the Junior Debt, and (ii) the Senior
Creditors shall be entitled to receive any payment or distribution of any kind
or character, whether in cash, securities or other property, which shall be
<PAGE> 7
-7-
payable or deliverable in respect of any or all of the Junior Debt, until
such time as the Senior Creditor Agreements have been terminated and the Senior
Debt has been indefeasibly paid and satisfied in full.
(b) In order to enable the Trustee, on behalf of the Senior Creditors to
enforce its rights under Section 2.2(a) above, Trustee is hereby irrevocably
authorized and empowered (in its own name or in the name of Junior Creditor or
otherwise), but shall have no obligation to, enforce claims comprising any of
the Junior Debt by proof of debt, proof of claim, suit or otherwise and take
generally any action which Junior Creditor might otherwise be entitled to take,
as Senior Creditor may deem necessary or advisable for the enforcement of its
rights or interests hereunder.
(c) To the extent necessary for the Senior Creditors to realize the
benefits of the subordination of the Junior Debt provided for herein, Junior
Creditor shall execute and deliver to the Trustee such instruments or documents
(together with such assignments or endorsements as Trustee shall deem
necessary), as may be requested by Trustee.
(d) Without limiting the foregoing, Trustee and each of its officers
holding the title of vice president or higher are hereby irrevocably appointed
by Junior Creditor as its true and lawful attorney-in-fact to prepare, sign and
file in Junior Creditor's name all such instruments or documents (together with
such assignments and endorsements), and to take such further actions as Trustee
may deem necessary or desirable for the enforcement of its rights or interests
hereunder.
2.3. Payments and Proceeds Received by Junior Creditor. Should any
payment or distribution or security or instrument or proceeds thereof be
received by Junior Creditor in respect of the Junior Debt, Junior Creditor
shall receive and hold the same in trust, as trustee, for the benefit of Senior
Creditors, segregated from other funds and property of Junior Creditor and
shall forthwith deliver the same to Trustee, on behalf of the Senior Creditors,
(together with any endorsement or assignment of Junior Creditor where
necessary), for application to any of the Senior Debt. In the event of the
failure of the Junior Creditor to make any such endorsement or assignment to
Trustee, the Trustee, or any of its officers or employees, are hereby
irrevocably authorized on behalf of Junior Creditor to make the same.
<PAGE> 8
-8-
2.4. Instrument Legend and Notation. Any instrument at any time
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Subordination Agreement, and the original of any such
instrument shall be immediately delivered to Senior Creditor. In the event any
legend or endorsement is omitted, Trustee or any of its officers or employees,
are hereby irrevocably authorized on behalf of Junior Creditor to make the
same. No specific legend, further assignment or endorsement or delivery of
notes, guarantees or instruments shall be necessary to subject any Junior Debt
to the subordination thereof contained in this Subordination Agreement.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES
3.1. Additional Covenants. Junior Creditor and Debtor agree in favor of
Senior Creditors that:
(a) Debtor shall not, directly or indirectly, make, and Junior Creditor
shall not, directly or indirectly, accept or receive, any payment of principal
or interest or other amount, whether or not due, or any prepayment or any
payment pursuant to acceleration or claims of breach or any payment to acquire
Junior Debt or otherwise in respect of any Junior Debt;
(b) Junior Creditor and Debtor shall not amend, modify, alter or change
in any respect the terms of any of the Junior Creditor Agreements or any other
arrangements related to the Junior Debt;
(c) Junior Creditor shall not sell, assign, pledge, encumber or otherwise
dispose of any of the Junior Debt, or subordinate any of the Junior Debt to any
indebtedness of Debtor other than the Senior Debt;
(d) Junior Creditor and Debtor shall, at any time or times upon the
request of Trustee, promptly furnish to Trustee a true, correct and complete
statement of the outstanding Junior Debt;
(e) Junior Creditor and Debtor shall execute and deliver to Trustee such
additional agreements, documents and instruments and take such further actions
as may be necessary or desirable in the opinion of Trustee to effectuate the
provisions and purposes of this Subordination Agreement.
<PAGE> 9
-9-
3.2. Additional Representations and Warranties. Junior Creditor and
Debtor represent and warrant to Senior Creditors that:
(a) as of the date hereof, no default or event of default, or event which
with notice or passage of time or both would constitute an event of default
exists or has occurred under the Junior Creditor Agreement;
(b) none of the Junior Debt is subject to any Lien, financing statements,
subordination, assignment or other claim, except in favor of Senior Creditor;
(c) this Subordination Agreement constitutes the legal, valid and binding
obligation of Junior Creditor, enforceable in accordance with its terms.
3.3. Waivers. Notice of acceptance hereof, the making of loans, advances
and extensions of credit or other financial accommodations to, and the
incurring of any expenses by or in respect of, Debtor by Senior Creditors, and
presentment, demand, protest, notice of protest, notice of nonpayment or
default and all other notices to which Junior Creditor and Debtor are or may be
entitled are hereby waived (except in the case of Debtor, for any notices
required to be given to Debtor as expressly provided for in the Senior Creditor
Agreements). Junior Creditor also waives notice of, and hereby consents to,
(a) any amendment, modification, supplement, renewal, restatement or extensions
of time of payment of or increase or decrease in the amount of any of the
Senior Debt or with respect to the Senior Creditor Agreements, (b) the taking,
exchange, surrender and releasing of guarantees now or at any time held by or
available to Senior Creditors for the Senior Debt or any other person at any
time liable for or in respect of the Senior Debt, (c) the exercise of, or
refraining from the exercise of any rights against Debtor or any other obligor,
(d) the settlement, compromise or release of, or the waiver of any default with
respect to, any of the Senior Debt, and/or (e) Senior Creditor's election, in
any proceeding instituted under the U.S. Bankruptcy Code, of the application of
Section 1111(b)(2) of the U.S. Bankruptcy Code. Any of the foregoing shall
not, in any manner, affect the terms hereof or impair the obligations of Junior
Creditor hereunder. All of the Senior Debt shall be deemed to have been made
or incurred in reliance upon this Subordination Agreement.
3.4. Subrogation; Marshalling. Junior Creditor shall not be subrogated
to, or be entitled to any assignment of
<PAGE> 10
-10-
any Senior Debt or Junior Debt or of any Collateral or guarantees or
evidence of any thereof. Junior Creditor hereby waives any and all rights to
have any Collateral or any part thereof granted to or on behalf of Senior
Creditors marshalled upon any foreclosure or other disposition of such
Collateral by or on behalf of the Senior Creditors or Debtor.
3.5. No Offset. In the event Junior Creditor at any time incurs any
obligation to pay money to Debtor, Junior Creditor hereby irrevocably agrees
that it shall pay such obligation in cash or cash equivalents in accordance
with the terms of the contract governing such obligation and shall not deduct
from or setoff against any amounts owed by the Junior Creditor to Debtor in
connection with any such transaction any amounts Junior Creditor claims are due
to it with respect to the Junior Debt.
4. MISCELLANEOUS
4.1. Amendments. Any waiver, permit, consent or approval by either
Creditor of or under any provision, condition or covenant to this Subordination
Agreement must be in writing and shall be effective only to the extent it is
set forth in writing and as to the specific facts or circumstances covered
thereby. Any amendment of this Subordination Agreement must be in writing and
signed by each of the parties to be bound thereby.
4.2. Successors and Assigns.
(a) This Subordination Agreement shall be binding upon the parties hereto
and their respective successors and assigns and shall inure to the benefit of
each Creditor and its respective successors, participants and assigns.
(b) Senior Creditors reserve the right to sell, assign, transfer or
negotiate all or any part of, or any interest in, the Senior Debt and the
Collateral securing same; provided, that, Junior Creditor shall not be
obligated to give any notices to or otherwise in any manner deal directly with
any participant in the Senior Debt and no participant shall be entitled to any
rights or benefits under this Subordination Agreement, except through Senior
Creditor.
(c) In connection with any assignment or transfer of any or all of the
Senior Debt, or any or all rights of Senior Creditors in the property of Debtor
(other than pursuant to a participation), Junior Creditor agrees to execute and
deliver
<PAGE> 11
-11-
an agreement containing terms substantially identical to those contained
herein in favor of any such assignee or transferee and, in addition, will
execute and deliver an agreement containing terms substantially identical to
those contained herein in favor of any third person who succeeds to or replaces
any or all of Senior Creditor's financing of Tom's, whether such successor
financing or replacement occurs by transfer, assignment, "takeout" or any other
means or vehicle.
4.3. Insolvency. This Subordination Agreement shall be applicable both
before and after the filing of any petition by or against Debtor under the U.S.
Bankruptcy Code and all converted or succeeding cases in respect thereof, and
all references herein to Debtor shall be deemed to apply to a trustee for
Debtor and Debtor as debtor-in-possession. The relative rights of Senior
Creditors and Junior Creditor to repayment of the Senior Debt and the Junior
Debt, respectively, and in or to any distributions from or in respect of Debtor
or any Collateral or proceeds of Collateral, shall continue after the filing
thereof on the same basis as prior to the date of the petition, subject to any
court order approving the financing of, or use of cash collateral by, Debtor as
debtor-in-possession.
4.4. Bankruptcy Financing. If Debtor shall become subject to a
proceeding under the U.S. Bankruptcy Code and if Senior Creditors desire to
permit the use of cash collateral or to provide financing to Debtor under
either Section 363 or Section 364 of the U.S. Bankruptcy Code, Junior Creditor
agrees as follows: (a) adequate notice to Junior Creditor shall have been
provided for such financing or use of cash collateral if Junior Creditor
receives notice two (2) business days prior to the entry of the order approving
such financing or use of cash collateral and (b) no objection will be raised by
Junior Creditor to any such financing or use of cash collateral on the ground
of a failure to provide "adequate protection" for Junior Creditor's junior
Liens on the Collateral or any other grounds. For purposes of this Section,
notice of a proposed financing or use of cash collateral shall be deemed given
when given, in the manner prescribed by Section 4.5 hereof, to Junior Creditor.
4.5. Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed to have been
duly given or made: if delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if mailed by cer-
<PAGE> 12
-12-
tified mail, return receipt requested, five (5) days after mailing. All
notices, requests and demands are to be given or made to the respective parties
at their addresses set forth below (or to such other addresses as either party
may designate by notice in accordance with the provisions of this Section):
To Senior Creditors: IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Office
To Junior Creditor: TFH Corp.
900 Eighth Street
Columbus, Georgia 31902
Attention: Mr. S. Albert Gaston
Either Creditor may change the address(es) to which all notices, requests and
other communications are to be sent by giving written notice of such address
change to the other Creditor in conformity with this Section 4.5, but such
change shall not be effective until notice of such change has been received by
the other Creditor.
4.6. Counterparts. This Subordination Agreement may be executed in any
number of counterparts, each of which shall be an original with the same force
and effect as if the signatures thereto and hereto were upon the same
instrument.
4.7. Governing Law. The validity, construction and effect of this
Subordination Agreement shall be governed by the internal laws of the State of
New York (without giving effect to principles of conflicts of law).
4.8. Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties
hereto hereby irrevocably consents to the non-exclusive jurisdiction of any
state or federal court of competent jurisdiction in the state of New York and
waives trial by jury in any action or proceeding with respect to this
Subordination Agreement.
4.9. Complete Agreement. This written Subordination Agreement is
intended by the parties as a final expression of their agreement and is
intended as a complete statement of the terms and conditions of their
agreement; provided, that the provisions of this Subordination Agreement in
favor of Senior Creditors shall be supplementary to the provisions, upon which
Senior Creditors may rely, contained in the letter agreement,
<PAGE> 13
-13-
dated of even date herewith, among Tom's, Junior Creditor and the account
parties in respect of the New TFH Backup L/C's.
4.10. No Third Parties Benefitted. This Subordination Agreement is
solely for the benefit of the Creditors and their respective successors,
participants and assigns, and no other person shall have any right, benefit,
priority or interest under, or because of the existence of, this Subordination
Agreement.
4.11. Disclosures; Non-Reliance. Each Creditor has the means to, and
shall in the future remain, fully informed as to the financial condition and
other affairs of Debtor and neither Creditor shall have any obligation or duty
to disclose any such information to the other Creditor. Except as expressly
set forth in this Subordination Agreement, the parties hereto have not
otherwise made to each other nor do they hereby make to each other any
warranties, express or implied, nor do they assume any liability to each other
with respect to: (a) the enforceability, validity, value or collectability of
any of the Junior Debt or Senior Debt or any guarantee or security which may
have been granted to any of them in connection therewith, (b) Debtor's title to
or right to transfer any of the Collateral, or (c) any other matter except as
expressly set forth in this Subordination Agreement.
4.12. Costs and Expenses. Junior Creditor shall pay to Trustee all costs
and expenses (including reasonable attorneys' fees and legal expenses) incurred
by Trustee in connection with the enforcement of this Subordination Agreement
and Senior Creditor's rights and Junior Creditor's obligations hereunder.
4.13. Term. This Subordination Agreement is a continuing agreement and
shall remain in full force and effect until the indefeasible payment and
satisfaction in full of all Senior Debt and the termination of the Senior
Creditor Agreements.
[signature page follows]
<PAGE> 14
-14-
IN WITNESS WHEREOF, the parties have caused this Subordination Agreement
to be duly executed as of the day and year first above written.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Terence Rawlins
----------------------------
Title: Assistant Vice President
-------------------------
TFH CORP.
By: /s/ S. Albert Gaston
----------------------------
Title: Vice President
-------------------------
<PAGE> 15
-15-
ACKNOWLEDGEMENT AND AGREEMENT
Each of the undersigned hereby acknowledges and agrees to the foregoing
terms and provisions. By its signature below, each of the undersigned agrees
that it will, together with its successors and assigns, be bound by the
provisions hereof. In the event of any conflict between the terms of the
foregoing Subordination Agreement and the Senior Creditor Agreements or the
Junior Creditor Agreements, the terms of the Senior Creditor Agreements or the
Junior Creditor Agreements, as the case may be, shall govern, solely as between
the Creditor involved and the undersigned.
Each of the undersigned acknowledges and agrees that: (i) although it may
sign this Subordination Agreement it is not a party hereto and does not and
will not receive any right, benefit, priority or interest under or because of
the existence of the foregoing Subordination Agreement, (ii) in the event of a
breach by the undersigned or Junior Creditor of any of the terms and provisions
contained in the foregoing Subordination Agreement, such a breach shall
constitute an "Event of Default" as defined in and under the Senior Creditor
Agreements and (iii) it will execute and deliver such additional documents and
take such additional action as may be necessary or desirable in the opinion of
Trustee to effectuate the provisions and purposes of the foregoing
Subordination Agreement.
TOM'S FOODS INC.
By: /s/ S. Albert Gaston
-----------------------------
Title: Senior Vice President
--------------------------
TOM'S FOODS CAPITAL CORPORATION
By: /s/ S. Albert Gaston
-----------------------------
Title: Vice President
--------------------------
<PAGE> 1
Exhibit 10.10
GUARANTEE
August 30, 1996
Congress Financial Corporation (Southern)
1000 Parkwood Circle
Atlanta, Georgia 30339
Re: Tom's Foods Inc. ("Borrower")
Gentlemen:
Congress Financial Corporation (Southern) ("Lender") and Borrower have
entered into certain financing arrangements pursuant to which Lender may make
loans and advances and provide other financial accommodations to Borrower as
set forth in the Loan and Security Agreement, dated of even date herewith, by
and between Borrower and Lender (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement"), and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including, but not limited to, this Guarantee (all of the
foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the "Financing Agreements").
Due to the close business and financial relationships between Borrower
and the undersigned ("Guarantor"), in consideration of the benefits which will
accrue to Guarantor and as an inducement for and in consideration of Lender
making loans and advances and providing other financial accommodations to
Borrower pursuant to the Loan Agreement and the other Financing Agreements,
Guarantor hereby agrees in favor of Lender as follows:
1. Guarantee.
(a) Guarantor absolutely and unconditionally guarantees and agrees to
be liable for the full and indefeasible payment and performance when due of the
following (all of which are collectively referred to herein as the "Guaranteed
Obligations"): (i) all obligations, liabilities and indebtedness of any kind,
nature and description of Borrower to Lender and/or its affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, to the extent
arising under the Loan Agreement or the other Financing Agreements, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Loan Agreement or after the commencement of
any case with respect
<PAGE> 2
to Borrower under the United States Bankruptcy Code or any similar statute
(including, without limitation, the payment of interest and other amounts,
which would accrue and become due but for the commencement of such case and
including loans, interest, fees, charges and expenses related thereto and all
other obligations of Borrower or its successors to Lender arising after the
commencement of such case), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, and however acquired by Lender and (ii) all
out-of-pocket expenses (including, without limitation, reasonable attorneys'
fees and legal expenses) incurred by Lender in connection with the preparation,
execution, delivery, recording, administration, collection, liquidation,
enforcement and defense of Borrower's obligations, liabilities and indebtedness
as aforesaid to Lender, the rights of Lender in any collateral or under this
Guarantee and all other Financing Agreements or in any way involving claims by
or against Lender directly or indirectly arising out of or related to the
relationships between Borrower, Guarantor or any other Obligor (as hereinafter
defined) and Lender, whether such expenses are incurred before, during or after
the initial or any renewal term of the Loan Agreement and the other Financing
Agreements or after the commencement of any case with respect to Borrower or
Guarantor under the United States Bankruptcy Code or any similar statute.
(b) This Guarantee is a guaranty of payment and not of collection.
Guarantor agrees that Lender need not attempt to collect any Guaranteed
Obligations from Borrower, Guarantor or any other Obligor or to realize upon
any collateral, but may require Guarantor to make immediate payment of all of
the Guaranteed Obligations to Lender when due, whether by maturity,
acceleration or otherwise, or at any time thereafter. Lender may apply any
amounts received in respect of the Guaranteed Obligations to any of the
Guaranteed Obligations, in whole or in part (including attorneys' fees and
legal expenses incurred by Lender with respect thereto or otherwise chargeable
to Borrower or Guarantor) and in such order as Lender may elect.
(c) Payment by Guarantor shall be made to Lender at the office of
Lender from time to time on demand as Guaranteed Obligations become due.
Guarantor shall make all payments to Lender on the Guaranteed Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. One or more
successive or concurrent actions may be brought hereon against Guarantor either
in the same action in which Borrower or any other Obligor is sued or in
separate actions. In the event any claim or action, or action on any judgment,
based on this Guarantee is brought against Guarantor,
-2-
<PAGE> 3
Guarantor agrees not to deduct, set-off, or seek any counterclaim for or recoup
any amounts which are or may be owed by Lender to Guarantor.
2. Waivers and Consents.
(a) Notice of acceptance of this Guarantee, the making of loans and
advances and providing other financial accommodations to Borrower and
presentment, demand, protest, notice of protest, notice of nonpayment or
default and all other notices to which Borrower or Guarantor is entitled are
hereby waived by Guarantor. Guarantor also waives notice of and hereby consents
to, (i) any amendment, modification, supplement, extension, renewal, or
restatement of the Loan Agreement and any of the other Financing Agreements,
including, without limitation, extensions of time of payment of or increase or
decrease in the amount of any of the Guaranteed Obligations or any collateral,
and the guarantee made herein shall apply to the Loan Agreement and the other
Financing Agreements and the Guaranteed Obligations as so amended, modified,
supplemented, renewed, restated or extended, increased or decreased, (ii) the
taking, exchange, surrender and releasing of collateral or guarantees now or at
any time held by or available to Lender for the obligations of Borrower or any
other party at any time liable on or in respect of the Guaranteed Obligations
or who is the owner of any property which is security for the Guaranteed
Obligations (individually, an "Obligor" and collectively, the "Obligors"),
(iii) the exercise of, or refraining from the exercise of any rights against
Borrower or any other Obligor or any collateral, (iv) the settlement,
compromise or release of, or the waiver of any default with respect to, any of
the Guaranteed Obligations and (v) any financing by Lender of Borrower under
Section 364 of the United States Bankruptcy Code or consent to the use of cash
collateral by Lender under Section 363 of the United States Bankruptcy Code.
Guarantor agrees that the amount of the Guaranteed Obligations shall not be
diminished and the liability of Guarantor hereunder shall not be otherwise
impaired or affected by any of the foregoing.
(b) No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations shall affect, impair or be a defense to this
Guarantee, nor shall any other circumstance which might otherwise constitute a
defense available to or legal or equitable discharge of Borrower in respect of
any of the Guaranteed Obligations, or Guarantor in respect of this Guarantee,
affect, impair or be a defense to this Guarantee. Without limitation of the
foregoing, the liability of Guarantor hereunder shall not be discharged or
impaired in any respect by reason of any failure by Lender to perfect or
continue perfection of any lien or security interest in any collateral or any
delay by Lender in perfecting any such lien or security interest. As
-3-
<PAGE> 4
to interest, fees and expenses, whether arising before or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, Guarantor shall be liable therefor,
even if Borrower's liability for such amounts does not, or ceases to, exist by
operation of law.
(c) Guarantor hereby irrevocably and unconditionally waives and
relinquishes all statutory, contractual, common law, equitable and all other
claims against Borrower, any collateral for the Guaranteed Obligations or other
assets of Borrower or any other Obligor, for subrogation, reimbursement,
exoneration, contribution, indemnification, setoff or other recourse in respect
to sums paid or payable to Lender by Guarantor hereunder and Guarantor hereby
further irrevocably and unconditionally waives and relinquishes any and all
other benefits which Guarantor might otherwise directly or indirectly receive
or be entitled to receive by reason of any amounts paid by or collected or due
from Guarantor, Borrower or any other Obligor upon the Guaranteed Obligations
or realized from their property.
3. Subordination. Payment of all amounts now or hereafter owed to
Guarantor by Borrower or any other Obligor is hereby subordinated in right of
payment to the indefeasible payment in full to Lender of the Guaranteed
Obligations and all such amounts and any security and guarantees therefor are
hereby assigned to Lender as security for the Guaranteed Obligations.
4. Acceleration. Notwithstanding anything to the contrary contained herein
or any of the terms of any of the other Financing Agreements, the liability of
Guarantor for the entire Guaranteed Obligations shall mature and become
immediately due and payable, even if the liability of Borrower or any other
Obligor therefor does not, upon the occurrence of any act, condition or event
which constitutes an Event of Default as such term is defined in the Loan
Agreement.
5. Account Stated. The books and records of Lender showing the account
between Lender and Borrower shall be admissible in evidence in any action or
proceeding against or involving Guarantor as prima facie proof of the items
therein set forth, and the monthly statements of Lender rendered to Borrower,
to the extent to which no written objection is made within thirty (30) days
from the date of sending thereof to Borrower, shall be deemed conclusively
correct and constitute an account stated between Lender and Borrower and be
binding on Guarantor.
6. Termination. This Guarantee is continuing, unlimited, absolute and
unconditional. All Guaranteed Obligations shall be conclusively presumed to
have been created in reliance on this Guarantee. Guarantor shall continue to be
liable hereunder until one of Lender's officers actually receives a written
termination
-4-
<PAGE> 5
notice from Guarantor sent to Lender at is address set forth above by certified
mail, return receipt requested and thereafter as set forth below. Revocation or
termination hereof by Guarantor shall not affect, in any manner, the rights of
Lender or any obligations or duties of Guarantor under this Guarantee with
respect to (a) Guaranteed Obligations which have been created, contracted,
assumed or incurred prior to the receipt by Lender of such written notice of
revocation or termination as provided herein, including, without limitation,
(i) all amendments, extensions, renewals and modifications of such Guaranteed
Obligations (whether or not evidenced by new or additional agreements,
documents or instruments executed on or after such notice of revocation or
termination), (ii) all interest, fees and similar charges accruing or due on
and after revocation or termination, and (iii) all reasonable attorneys' fees
and legal expenses, costs and other expenses paid or incurred on or after such
notice of revocation or termination in attempting to collect or enforce any of
the Guaranteed Obligations against Borrower, Guarantor or any other Obligor
(whether or not suit be brought), or (b) Guaranteed Obligations which have been
created, contracted, assumed or incurred after the receipt by Lender of such
written notice of revocation or termination as provided herein pursuant to any
contract entered into by Lender prior to receipt of such notice. The sole
effect of such revocation or termination by Guarantor shall be to exclude from
this Guarantee the liability of Guarantor for those Guaranteed Obligations
arising after the date of receipt by Lender of such written notice which are
unrelated to Guaranteed Obligations arising or transactions entered into prior
to such date. Without limiting the foregoing, this Guarantee may not be
terminated and shall continue so long as the Loan Agreement shall be in effect
(whether during its original term or any renewal, substitution or extension
thereof).
7. Reinstatement. If after receipt of any payment of, or proceeds of
collateral applied to the payment of, any of the Guaranteed Obligations, Lender
is required to surrender or return such payment or proceeds to any Person for
any reason, then the Guaranteed Obligations intended to be satisfied by such
payment or proceeds shall be reinstated and continue and this Guarantee shall
continue in full force and effect as if such payment or proceeds had not been
received by Lender. Guarantor shall be liable to pay to Lender, and does
indemnify and hold Lender harmless for the amount of any payments or proceeds
surrendered or returned. This Section 7 shall remain effective notwithstanding
any contrary action which may be taken by Lender in reliance upon such payment
or proceeds. This Section 7 shall survive the termination or revocation of this
Guarantee.
8. Amendments and Waivers. Neither this Guarantee nor any provision hereof
shall be amended, modified, waived or discharged
-5-
<PAGE> 6
orally or by course of conduct, but only by a written agreement signed by an
authorized officer of Lender. Lender shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its rights,
powers and/or remedies unless such waiver shall in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or waiver
of any such right, power and/or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
9. Corporate Existence, Power and Authority. Guarantor is a corporation
duly organized and in good standing under the laws of its state or other
jurisdiction of incorporation and is duly qualified as a foreign corporation
and in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the financial condition,
results of operation or businesses of Guarantor or the rights of Lender
hereunder or under any of the other Financing Agreements. Guarantor does not
now nor shall it ever own any property or interests in property other than its
interests in the capital stock of Borrower and the principal amount of all
indebtedness owed by Borrower to Guarantor as of the date hereof, plus now
owing and hereafter accruing interest, and Guarantor is not now nor shall it
ever engage in any business other than its ownership of certain of the capital
stock of Borrower and the indebtedness owed by Borrower to Guarantor. The
execution, delivery and performance of this Guarantee is within the corporate
powers of Guarantor, have been duly authorized and is not in contravention of
law or the terms of the certificates of incorporation, by-laws, or other
organizational documentation of Guarantor, or any indenture, agreement or
undertaking to which Guarantor is a party or by which Guarantor or its property
are bound. This Guarantee constitutes the legal, valid and binding obligation
of Guarantor enforceable in accordance with its terms.
10. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) The validity, interpretation and enforcement of this Guarantee and
any dispute arising out of the relationship between Guarantor and Lender,
whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of Georgia (without giving effect to principles of
conflicts of law).
-6-
<PAGE> 7
(b) Guarantor hereby irrevocably consents and submits to the
non-exclusive jurisdiction of the Superior Court of Fulton County, Georgia and
the United States District Court for the Northern District of Georgia and
waives any objection based on venue or forum non conveniens with respect to any
action instituted therein arising under this Guarantee or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of Guarantor and Lender in respect of this Guarantee or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising and whether in contract,
tort, equity or otherwise, and agrees that any dispute arising out of the
relationship between Guarantor or Borrower and Lender or the conduct of any
such persons in connection with this Guarantee, the other Financing Agreements
or otherwise shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against Guarantor
or its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on any collateral at any time
granted by Borrower or Guarantor to Lender or to otherwise enforce its rights
against Guarantor or its property).
(c) Guarantor hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails,
or, at Lender's option, by service upon Guarantor in any other manner provided
under the rules of any such courts. Within thirty (30) days after such service,
Guarantor shall appear in answer to such process, failing which Guarantor shall
be deemed in default and judgment may be entered by Lender against Guarantor
for the amount of the claim and other relief requested.
(d) GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS GUARANTEE OR ANY OF
THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF GUARANTOR AND LENDER IN RESPECT OF THIS GUARANTEE
OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
IN CONTRACT, TORT, EQUITY OR OTHERWISE. GUARANTOR HEREBY AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY
COURT TRIAL WITHOUT A JURY AND THAT GUARANTOR OR LENDER MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF GUARANTOR AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
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<PAGE> 8
(e) Lender shall not have any liability to Guarantor (whether in tort,
contract, equity or otherwise) for losses suffered by Guarantor in connection
with, arising out of, or in any way related to the transactions or
relationships contemplated by this Guarantee, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
nonappealable judgment or court order binding on Lender that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of the Loan Agreement and
the other Financing Agreements.
11. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth above and to Guarantor
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next business day, one (1) business day after sending; and if by certified
mail, return receipt requested, five (5) days after mailing.
12. Partial Invalidity. If any provision of this Guarantee is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
13. Entire Agreement. This Guarantee represents the entire agreement and
understanding of this parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
14. Successors and Assigns. This Guarantee shall be binding upon Guarantor
and its successors and assigns and shall inure to the benefit of Lender and its
successors, endorsees, transferees and assigns. The liquidation, dissolution or
termination of Guarantor shall not terminate this Guarantee as to such entity
or as to Guarantor.
-8-
<PAGE> 9
15. Construction. All references to the term "Guarantor" wherever used
herein shall mean Guarantor and its successors and assigns (including, without
limitation, any receiver, trustee or custodian for Guarantor or any of its
assets or Guarantor in its capacity as debtor or debtor-in-possession under the
United States Bankruptcy Code). All references to the term "Lender" wherever
used herein shall mean Lender and its successors and assigns and all references
to the term "Borrower" wherever used herein shall mean Borrower and its
successors and assigns (including, without limitation, any receiver, trustee or
custodian for Borrower or any of its assets or Borrower in its capacity as
debtor or debtor-in-possession under the United States Bankruptcy Code). All
references to the term "Person" or "person" wherever used herein shall mean any
individual, sole proprietorship, partnership, corporation (including, without
limitation, any corporation which elects subchapter S status under the Internal
Revenue Code of 1986, as amended), business trust, unincorporated association,
joint stock corporation, trust, joint venture or other entity or any government
or any agency or instrumentality or political subdivision thereof. All
references to the plural shall also mean the singular and to the singular shall
also mean the plural.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guarantee
as of the day and year first above written.
ATTEST: TFH CORP.
/s/ By: /s/ S. Albert Gaston
- - ------------------------- ---------------------------
Title: Vice President
------------------------
Chief Executive Office
900 Eighth Street
Columbus, Georgia 31902
-9-
<PAGE> 10
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 30th day of August, 1996, before me personally came S. Albert
Gaston, to me known, who stated that he is the Vice President of TFH CORP.,
the corporationdescribed in and which executed the foregoing instrument;
and that he signed his name thereto by order of the Board of Directors
of said corporation.
/s/ Demitra Kolioyotas Lynch
-------------------------------
Notary Public
[DEMITRA KOLIOYOTAS LYNCH Notary Seal]
-10-
<PAGE> 1
Exhibit 10.11
TFH CORP.
900 Eighth Street
Columbus, Georgia 31902
October 14, 1997
Congress Financial Corporation
(Southern)
200 Galleria Parkway
Suite 1500
Atlanta, Georgia 30339
Re: Confirmation and Acknowledgement of Guarantee
Gentlemen:
Reference is made to the Loan and Security Agreement, dated as of
August 30, 1996, between Congress Financial Corporation (Southern) ("Lender")
and Tom's Foods Inc. ("Borrower"), pursuant to which Lender and Borrower have
entered into secured financing arrangements (the "Loan Agreement"). Pursuant to
the Loan Agreement, TFH Corp. ("TFH") executed and delivered to Lender a
Guarantee, dated as of August 30, 1996, pursuant to which, among other things,
TFH absolutely and unconditionally guaranteed payment and performance of all
Obligations of Borrower to Lender (the "Guarantee"). Capitalized terms used
herein and not otherwise defined herein, shall have the respective meanings
ascribed to such terms in the Loan Agreement.
In connection with the proposed issuance by Borrower of $60,000,000 of
its 10 1/2% Senior Secured Notes due 2004, Borrower and Lender are about to
enter into an Amended and Restated Loan and Security Agreement, dated as of the
date hereof, amending and restating the terms and provisions governing the
financing arrangements between Borrower and Lender (the "Amended Loan
Agreement"). It is a condition precedent to the effectiveness of the Amended
Loan Agreement and any loans and other financial accommodations to Borrower
thereunder, that TFH execute and deliver to Lender this confirmation and
acknowledgment.
Accordingly, TFH hereby acknowledges and confirms to Lender that the
Guarantee remains in full force and effect, unmodified, that the term
"Guaranteed Obligations" as used therein shall include all present and future
"Obligations" (as defined in the Amended Loan Agreement) of Borrower to Lender,
and
<PAGE> 2
that TFH is and shall remain liable to Lender pursuant to the Guarantee,
without offset, defense or counterclaim of any kind, nature or description.
TFH hereby further represents and warrants to Lender that all of the
representations and warranties contained in the Guarantee are true, correct and
complete as of the date hereof, except to the extent, if any, that such
representations and warranties specifically relate to a specified earlier date,
in which case such representations and warranties are true and correct as of
such specified earlier date.
This confirmation and acknowledgement shall be binding upon TFH and its
successors and assigns, and shall inure to the benefit of Lender and its
successors and assigns.
TFH WAIVES THE RIGHT TO TRIAL BY JURY IN RESPECT OF ANY MATTER ARISING
OUT OF OR IN ANY WAY RELATING TO THE LOAN AGREEMENT, THE GUARANTEE OR THIS
CONFIRMATION AND ACKNOWLEDGEMENT.
This confirmation and acknowledgement shall be governed by, and
construed in accordance with, the internal laws of the State of Georgia,
without regard to principles of conflicts of law.
Very truly yours,
TFH CORP.
By: /s/ S. Albert Gaston
-------------------------
Title: Vice President
----------------------
2
<PAGE> 1
EXHIBIT 12
TOM'S FOODS INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
24 WEEK PERIOD
FISCAL YEAR ENDED ENDED PROFORMA
------------------------------------------ ------------------- -----------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 15, JUNE 14, DECEMBER 28, JUNE 14,
1994 1995 1996 1996 1997 1996 1997
------------ ------------ ------------ -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Pretax loss............. (754) (18,261) (11,067) (2,727) (2,420) (11,108) (2,242)
Fixed charges........... 7,377 9,002 10,368 4,110 5,349 13,638 6,435
----- ------- ------- ------ ------ ------- ------
6,623 (9,259) (699) 1,383 2,929 2,530 4,193
Fixed Charges:
Interest expense........ 6,405 7,870 9,402 3,687 4,768 8,443 3,821
Preferred stock
dividends............. 0 0 0 0 0 4,407 2,034
Interest factor relating
to rentals(a)......... 972 1,132 966 423 581 788 580
----- ------- ------- ------ ------ ------- ------
7,377 9,002 10,368 4,110 5,349 13,638 6,435
Ratio of earnings to fixed
charges................. 0.90 (1.03) (0.07) 0.34 0.55 0.19 0.65
===== ======= ======= ====== ====== ======= ======
</TABLE>
- - ---------------
(a) Represents interest expense factor related to rental expense
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made part of this
Registration Statement.
ARTHUR ANDERSEN LLP
October 24, 1997
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
Offer to Exchange
10 1/2% Senior Secured Notes due November 1, 2004
For Any and All Outstanding
10 1/2% Senior Secured Notes due November 1, 2004
of
TOM'S FOODS INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME
ON , UNLESS EXTENDED (THE "EXPIRATION DATE")
IF YOU WISH TO ACCEPT THE EXCHANGE OFFER,
THIS LETTER OF TRANSMITTAL SHOULD BE COMPLETED,
SIGNED AND SUBMITTED BY REGISTERED OR CERTIFIED MAIL,
BY FACSIMILE WITH ORIGINAL TO FOLLOW,
BY OVERNIGHT COURIER OR BY HAND TO:
IBJ SCHRODER BANK & TRUST COMPANY
Attn: Terence Rawlins
One State Street
New York, NY 10004
By Facsimile:
(212) 858-2952
Confirm by Telephone:
(212) 858-2657
------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
By execution hereof, the undersigned acknowledges receipt of the Prospectus
dated (the "Prospectus") of Tom's Foods Inc. (the "Company") which,
together with this Letter of Transmittal and the instructions hereto (the
"Letter of Transmittal"), describes the Company's offer (the "Exchange Offer")
to exchange $1,000 in principal amount of a new series of notes known as 10 1/2%
Senior Secured Notes due November 1, 2004 (the "Exchange Notes") for each $1,000
in principal amount of outstanding 10 1/2% Senior Secured Notes due November 1,
2004 (the "Old Notes"). The terms of the Exchange Notes are identical in all
material respects (including principal amount, interest rate and maturity) to
the terms of the Old Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the offering of the Exchange Notes will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and, therefore, the Exchange Notes will not bear legends restricting the
transfer thereof.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date may tender their
1
<PAGE> 2
Old Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures."
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by such Holder; (ii) tender of Old Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in the Prospectus under "The Exchange
Offer--Book-Entry Transfer" by any financial institution that is a participant
in DTC and whose name appears on a security position listing as the owner of Old
Notes (such participants, acting on behalf of Holders, are referred to herein,
together with such Holders, as "Acting Holders"); or (iii) tender of Old Notes
is to be made according to the guaranteed delivery procedures set forth in the
Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures." DELIVERY
OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Unless the context requires otherwise, the term "Holder" for purposes of
this Letter of Transmittal means any person: (i) in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder or (ii) whose Old Notes
are held of record by DTC who desires to deliver such Old Notes by book-entry
transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER
THEIR OLD NOTES MUST COMPLETE THIS LETTER IN ITS ENTIRETY.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS, THIS LETTER OF TRANSMITTAL OR THE NOTICE OF GUARANTEED DELIVERY MAY
BE DIRECTED TO THE EXCHANGE AGENT.
2
<PAGE> 3
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the schedule to this
Letter of Transmittal.
<TABLE>
<S> <C> <C>
- - -----------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
- - -----------------------------------------------------------
CERTIFICATE NUMBER(S)* AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (ATTACH SIGNED LIST IF AMOUNT TENDERED
(PLEASE FILL IN) NECESSARY) (IF LESS THAN ALL)**
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
TOTAL
- - -----------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless otherwise indicated, the Holder will be deemed to have tendered the full aggregate principal amount
represented by Old Notes. See Instruction 2.
- - -----------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITORY
TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------------------------------------
DTC Participant Number
------------------------------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------------
Name of Participant Contact Person
-------------------------------------------------------------------------------
Telephone number
------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) of Old Notes
-------------------------------------------------------------------
Window Ticket No. (if any)
------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery
------------------------------------------------------------
DTC Book-Entry Account Number
- - --------------------------------------------------------------------------------
If Delivered by Book-Entry Transfer:
-------------------------------------------------------------------------------
Name of Tendering Institution
------------------------------------------------------------------------------
Transaction Code Number
------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-----------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Notes tendered herewith, the undersigned hereby exchanges, sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent also acts as the agent of the Company and as Trustee under the Indenture
for the Old Notes and the Exchange Notes) with respect to the tendered Old Notes
with full power of substitution to (i) deliver certificates for such Old Notes
to the Company, or transfer ownership of such Old Notes on the account books
maintained by DTC, together, in either such case, with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company and
(ii) present such Old Notes for transfer on the books of the Company and receive
all benefits and otherwise exercise all rights of beneficial ownership of such
Old Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed irrevocable and coupled with
an interest.
The undersigned represents and warrants that it has full power and
authority to tender, exchange, sell, assign and transfer the Old Notes tendered
hereby and to acquire Exchange Notes issuable upon the exchange of such tendered
Old Notes, and that, when the Old Notes are accepted for exchange, the Company
will acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, sale, assignment and transfer of tendered
Old Notes or transfer ownership of such Old Notes on the account books
maintained by DTC.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Old Notes tendered hereby
and, in such event, certificates for such Old Notes not exchanged will be
returned (except as noted below with respect to tenders through DTC), without
expense, to the undersigned at the address shown below the signature of the
undersigned.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance upon interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties that the
Exchange Notes issued in exchange for the Old Notes pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by Holders
thereof (other than any such Holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) 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, such Holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and neither such Holder
nor any other such person is engaging in or intends to engage in a distribution
of such Exchange Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of the Exchange Notes. If the undersigned is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Old Notes,
the undersigned represents that such Old Notes were acquired as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned represents to the Company that (i) the Exchange Notes
acquired by the Holder and any beneficial owners of Old Notes pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, (ii) neither the Holder nor any such
beneficial owner
4
<PAGE> 5
has an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, (iii) neither the Holder, nor such
beneficial owner, nor any such other person is engaged in or intends to engage
in a distribution of the Exchange Notes and (iv) neither the Holder nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if such Holder is an affiliate, that such Holder
will comply with the registration and prospectus delivery requirements of the
Act to the extent applicable.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, bankruptcy or incapacity of the undersigned
and every obligation of the undersigned hereunder shall be binding upon the
heirs, personal representatives, successors and assigns of the undersigned.
TENDERED OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION
DATE.
Unless otherwise indicated under "Special Issuance Instructions,"
certificates representing the Exchange Notes issued in exchange for the Old
Notes accepted for exchange will be issued, and any Old Notes not tendered or
not exchanged will be returned, in the name(s) of the undersigned (or in either
such event in the case of Old Notes tendered by DTC, by credit to the account at
DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," certificates representing the Exchange Notes issued in exchange
for the Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged (and accompanying documents, as appropriate) will be
sent to the undersigned at the address shown below the undersigned's signatures,
unless, in either event, tender is being made through DTC. In the event that
both "Special Issuance Instructions" and "Special Delivery Instructions" are
completed, certificates representing the Exchange Notes issued in exchange for
the Old Notes accepted for exchange will be issued, and any Old Notes not
tendered or not exchanged will be returned, in the name(s) of, and said
certificates will be sent to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Issuance
Instructions" and "Special Delivery Instructions" to transfer any Old Notes from
the name of the registered Holder(s) thereof if the Company does not accept for
exchange any of the Old Notes so tendered.
5
<PAGE> 6
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD NOTES REGARDLESS
OF WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below under "Capacity" and submit evidence satisfactory to the
Issuers of such person's authority to so act. See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of the
Old Notes, then the registered Holder(s) must sign a valid proxy.
X
- - -------------------------------------------------
X
- - -------------------------------------------------
Signature(s) of Holder(s) or Authorized Signatory
Name(s):
- - -----------------------------------------
- - ------------------------------------------------------
(Please Print)
Capacity:
- - ------------------------------------------
Social Security No.:
- - ------------------------------
Date:
- - ----------------------------------------------
Date:
- - ----------------------------------------------
Address:
- - ------------------------------------------
- - ------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.:
- - ------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
CERTAIN SIGNATURES MUST BE MEDALLION STAMP GUARANTEED BY AN ELIGIBLE INSTITUTION
- - --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- - --------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code) of
Firm)
- - --------------------------------------------------------------------------------
(Authorized Signature)
- - --------------------------------------------------------------------------------
(Printed Name)
- - --------------------------------------------------------------------------------
(Title)
Date:
- - -------------------------------------------------
<PAGE> 7
----------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered are to be issued in the name of, or the Exchange Notes issued
pursuant to the Exchange Offer are to be issued to the order of, someone other
than the person or persons whose signature(s) appear(s) within this Letter of
Transmittal or issued to an address different from that shown in the box
entitled "Description of Old Notes Tendered Herewith" within this Letter of
Transmittal, or if Old Notes tendered by book-entry transfer that are not
accepted for purchase are to be credited to a different account maintained at
DTC.
Name:
-------------------------------------------------
(Please Print)
Address:
-----------------------------------------------
(Please Print)
---------------------------------------------------------
Zip Code
---------------------------------------------------------
Taxpayer Identification or Social Security Number
(See Substitute Form W-9 herein)
==========================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered or not accepted for purchase or the Exchange Notes issued
pursuant to the Exchange Offer are to be sent to someone other than the person
or persons whose signature(s) appear(s) within this Letter of Transmittal or
to an address different from that shown in the box entitled "Description of
Old Notes Tendered Herewith" within this Letter of Transmittal.
Name:
-------------------------------------------------
(Please Print)
Address:
-----------------------------------------------
(Please Print)
---------------------------------------------------------
Zip Code
---------------------------------------------------------
Taxpayer Identification or Social Security Number
(See Substitute Form W-9 herein)
----------------------------------------------------------
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR OLD
NOTES. Certificates for all physically delivered Old Notes or confirmation of
any book-entry transfer to the Exchange Agent's account at DTC of Old Notes
tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof with original
to follow, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at its address set forth herein on or prior to
the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE TENDERED OLD
NOTES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER
AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF SUCH
DELIVERY IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent on or
prior to the Expiration Date may tender their Old Notes pursuant to the
guaranteed delivery procedure set forth in the Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures." Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution (as defined therein);
(ii) on or prior to the Expiration Date the Exchange Agent must have received
from such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the tendering Holder, the certificate number(s) of
such Old Notes (if available) and the principal amount of Old Notes tendered and
stating that the tender is being made thereby, and (iii) all tendered Old Notes
(or a confirmation of any book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC) as well as this Letter of Transmittal and all
other documents required by this Letter of Transmittal must be received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date, all as provided in the Prospectus under the caption "The
Exchange Offer--Guaranteed Delivery Procedures."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that the Company determines are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders,
unless otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
2. PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Notes will be accepted in
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of any Old Notes evidenced by a submitted
certificate is tendered, the tendering Holder should fill in the principal
amount tendered in the third
<PAGE> 9
column of the chart entitled "Description of Old Notes Tendered Herewith." The
entire principal amount of Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. If the entire principal
amount of all Old Notes is not tendered, Old Notes for the principal amount of
Old Notes not tendered and a certificate or certificates representing Exchange
Notes issued in exchange for any Old Notes accepted will be sent to the Holder
at his or her registered address, unless otherwise indicated under "Special
Issuance Instructions" or "Special Delivery Instructions" or unless tender is
made through DTC, promptly after the Old Notes are accepted for exchange.
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. To be effective, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m. Eastern Standard Time on the
Expiration Date. Any such notice of withdrawal must specify the person named in
the Letter of Transmittal as having tendered Old Notes to be withdrawn, the
certificate numbers of the Old Notes to be withdrawn, the principal amount of
Old Notes delivered for exchange, a statement that such Holder is withdrawing
its election to have such Old Notes exchanged, and the name of the registered
Holder of such Old 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 documents of transfer sufficient to
have the Trustee register the transfer of such Old Notes into the name of the
person(s) withdrawing the tender, and specify the name in which any such Old
Notes are to be registered, if different from the person having deposited the
Old Notes.
If certificates for Old Notes have been delivered or otherwise identified
to the Exchange Agent, then, prior to the release of such certificates, the
withdrawing Holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
Medallion Stamp guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company in its sole discretion, which
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes
may be retendered by following one of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering" at any time prior to the
Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at DTC pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with DTC for the Old Notes).
3. SIGNATURE ON LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Old Notes tendered hereby, the signature must
correspond with name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever. If any of the Old Notes
tendered hereby are owned of record by two or more joint owners, all such owners
must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
If this Letter of Transmittal is signed by the registered Holder(s) of Old
Notes tendered hereby, such Holder(s) need not and should not endorse any
tendered Old Note, nor provide a separate bond power.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of the Old Notes tendered, such Old Notes must either be
properly endorsed or accompanied by a properly completed separate
<PAGE> 10
bond power in form satisfactory to the Company and duly executed by the
registered Holder(s), in either case signed exactly as the name or names of the
registered Holder(s) appear(s) on the Old Notes, and with the signatures on the
bond power Medallion Stamp guaranteed by an Eligible Institution.
If this Letter of Transmittal, any certificates for Old Notes or separate
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority so to act must be submitted with this Letter of Transmittal.
Endorsements on certificates for Old Notes or signatures on separate bond
powers required by this Instruction 3 must be Medallion Stamp guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal need not be Medallion Stamp
guaranteed by an Eligible Institution, unless the Old Notes are tendered: (i) by
a registered Holder who has not completed the box entitled, "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal;
or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which Exchange Notes
or substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
Holder(s) of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person(s) other than the person(s) signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive, or modify, in whole or in part, any of the conditions to the Exchange
Offer set forth in the Prospectus.
7. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance, as well as requests for additional copies of the Prospectus and this
Letter of Transmittal, may be directed to the Exchange Agent at the address and
telephone number set forth herein. Holders may also contact their broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
IMPORTANT: This Letter of Transmittal or a facsimile thereof with original
to follow (together with certificates for old notes or confirmation of
book-entry transfer and all other required documents) or a notice of Guaranteed
Delivery must be received by the Exchange Agent on or prior to the Expiration
Date.
<PAGE> 11
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made with respect to Old Notes purchased pursuant to the
Exchange Offer may be subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to the Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the Exchange
Notes, the Holder is required to provide the Exchange Agent, with either: (i)
the Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN) and that (A) the Holder has not been notified by the Internal Revenue
Service that the Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (B) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding;
or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Old Notes. If the Old Notes are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
<PAGE> 12
<TABLE>
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: IBJ SCHRODER BANK & TRUST COMPANY
- - ------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT
FORMW-9 AND CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
or Employer
Identification Number
----------------------------
-------------------------------------------------------------------------------------------
DEPARTMENT OF THE
TREASURY PART 2--Certification. Under Penalties of Perjury, I certify that (1) The number shown on
INTERNAL REVENUE SERVICE this form is my correct Taxpayer Identification Number (or I am waiting for a number to
PAYER'S REQUEST FOR TAXPAYER be issued to me) and (2) I am not subject to backup withholding because I have not been
IDENTIFICATION NUMBER (TIN) notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding
as a result of failure to report all interest or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
-------------------------------------------------------------------------------------------
Certification Instructions--You must cross out item (2) PART 3--
in Part 2 above if you have been notified by the IRS Awaiting TIN [ ]
that you are subject to backup withholding because of
underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you
were subject to backup withholding you received another
notification from the IRS stating that you are no longer
subject to backup withholding, do not cross out item
(2).
SIGNATURE _____________________ DATE ________
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9.
<TABLE>
<S> <C>
- - --------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to
me, and either (a) I have mailed or delivered an application to receive a taxpayer identification
number to the appropriate Internal Revenue Service Center or Social Security Administration
Officer or (b) I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31 percent of all reportable
payments made to me thereafter will be withheld until I provide a number.
______________________________________________________ _______________________________
Signature Date
- - --------------------------------------------------------------------------------------------------
</TABLE>
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Mail, Hand or Overnight Courier: By Facsimile:
IBJ Schroder Bank & Trust Company (212) 858-2952
One State St.
New York, NY 10004 Confirm by Telephone:
Attn: Terence Rawlins (212) 858-2657
</TABLE>
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
OFFER TO EXCHANGE
10 1/2% SENIOR SECURED NOTES DUE NOVEMBER 1, 2004
FOR ANY AND ALL OUTSTANDING
10 1/2% SENIOR SECURED NOTES DUE NOVEMBER 1, 2004
OF
TOM'S FOODS INC.
As set forth in the Prospectus, dated (the "Prospectus"),
of Tom's Foods Inc. (the "Company"), and the accompanying Letter of Transmittal
and instructions thereto (the "Letter of Transmittal"), this form or one
substantially equivalent hereto must be used to accept the Company's offer to
exchange (the "Exchange Offer") 10 1/2% Senior Secured Notes due November 1,
2004 (the "Exchange Notes") for any and all of its outstanding 10 1/2% Senior
Secured Notes due November 1, 2004 (the "Old Notes") if (i) certificates
representing the Old Notes to be tendered for purchase and payment are not
immediately available, or (ii) time will not permit the Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date. This form may be delivered by
an Eligible Institution by mail or hand delivery, or transmitted via facsimile
with original to follow, to the Exchange Agent as set forth below. All
capitalized terms used herein but not defined herein shall have the meanings
ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON
UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS
OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION
DATE.
THE EXCHANGE AGENT:
IBJ SCHRODER BANK & TRUST COMPANY
By Mail, Hand or Overnight Courier:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Attn: Terence Rawlins
By Facsimile:
(212) 858-2952
Confirm by Telephone:
(212) 858-2657
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be Medallion Stamp guaranteed by an
"Eligible Institution" under the instructions thereto, such signature guarantee
must appear in the applicable space provided in the signature box on the Letter
of Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tenders(s) to the Company, upon the terms and
subject to the conditions set forth in the Exchange Offer and the Letter of
Transmittal, receipt of which is hereby acknowledged, the aggregate principal
amount of Old Notes set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus.
The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 p.m., Eastern Standard time on the Expiration
Date. Tenders of Old Notes may be also be withdrawn if the Exchange Offer is
terminated without any such Old Notes being purchased thereunder or as otherwise
provided in the Prospectus.
<PAGE> 2
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Owner(s) or Authorized Signatory:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Name(s) of Registered Holder(s):
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Principal Amount of Old Notes Tendered:
- - --------------------------------------------------------------------------------
Address:
- - --------------------------------------------------------------------------------
Certificate No(s). of Old Notes (if available):
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Area Code and Telephone No.:
- - --------------------------------------------------------------------------------
If Old Notes will be delivered by book-entry
transfer at The Depository Trust Company, insert
Depository Account No.:
- - --------------------------------------------------------------------------------
Date:
- - --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear on certificates for
Old Notes or on a security position identifying it (them) as the owner of Old
Notes, or by person(s) authorized to become registered Holder(s) by endorsements
and documents transmitted with this Notice of Guaranteed Delivery. If signature
is by a trustee, executor,
2
<PAGE> 3
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must provide the following
information.
Please print name(s) and address(es)
<TABLE>
<S> <C>
Name(s) ------------------------------------------------------------
------------------------------------------------------------
Capacity:
------------------------------------------------------------
Address(es):
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE
EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
3
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office, branch, agency or correspondent in the United
States, hereby guarantees that, within three New York Stock Exchange, Inc.
trading days after the Expiration Date, a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof), with any required signature
guarantees, together with certificates representing the Old Notes covered hereby
in proper form for transfer (or confirmation of the book-entry transfer of such
Old Notes into the Exchange Agent's account at the Depository Trust Company,
pursuant to the procedure for book-entry transfer set forth in the Prospectus)
and any other documents required by the Letter of Transmittal will be delivered
by undersigned to the Exchange Agent at its address set forth above.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET
FORTH ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Authorized Signature
Address:
- - --------------------------------------------------------------------------------
Name:
- - --------------------------------------------------------------------------------
Title:
- - --------------------------------------------------------------------------------
Area Code and Telephone No.:
- - -------------------------------------------------------------------------------
Date:
- - --------------------------------------------------------------------------------
4
<PAGE> 1
EXHIBIT 99.3
OFFER TO EXCHANGE
10 1/2% SENIOR SECURED NOTES DUE NOVEMBER 1, 2004
FOR ANY AND ALL OUTSTANDING
10 1/2% SENIOR SECURED NOTES DUE NOVEMBER 1, 2004
OF
TOM'S FOODS INC.
TO BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
We are enclosing herewith the material listed below relating to the offer
by Tom's Foods Inc., a Delaware corporation (the "Company") to exchange its
10 1/2% Senior Secured Notes due November 1, 2004 (the "Exchange Notes"), for a
like principal amount of its issued and outstanding 10 1/2% Senior Secured Notes
due November 1, 2004 (the "Old Notes") pursuant to an offering registered under
the Securities Act of 1933, as amended (the "Securities Act"), upon the terms
and subject to the conditions set forth in the Company's Prospectus, dated
, and the related Letter of Transmittal (which together
constitute the "Exchange Offer").
The Exchange Offer provides a procedure for holders to tender the Old Notes
by means of guaranteed delivery.
The Exchange Offer will expire at 5:00 p.m., Eastern Standard time, on
, unless extended (the "Expiration Date"). Tendered Old Notes may
be withdrawn at any time prior to 5:00 p.m. Eastern Standard time on the
Expiration Date, if such Old Notes have not previously been accepted for
exchange pursuant to the Exchange Offer.
Based on interpretations of the staff of the Securities and Exchange
Commission (the "SEC"), Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is acquiring the
Exchange Notes in its ordinary course of business, such holder has no
arrangement or understanding with any person to participate in a distribution of
the Exchange Notes, and neither such holder nor any other such person is
engaging in or intends to engage in a distribution of such Exchange Notes.
Holders of Old Notes wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met.
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 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. The 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 Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 180 days after
the date of the Prospectus, it will make the Prospectus and any amendments or
supplements thereto required for compliance with the Securities Act available to
any broker-dealer for use in connection with any such resale.
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF OLD NOTES
BEING TENDERED.
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided in the Prospectus.
THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED OLD NOTES FROM ANY
TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS SOLE AND ABSOLUTE
<PAGE> 2
DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE
SECURITIES LAWS.
For your information and for forwarding to your clients for whom you hold
Old Notes registered in your name or in the name of your nominee, enclosed
herewith are copies of the following documents:
1. Prospectus dated ;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or DTC Participant from Beneficial
Owner;
5. Letter which may be sent to your clients for whose account you hold Old
Notes in your name or in the name of your nominee, to accompany the
instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer; and
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 of the Internal Revenue Service (attached to Letter
of Transmittal).
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 5 of the enclosed
Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer may be
addressed to, and additional copies of the enclosed materials may be obtained
from the Exchange Agent, IBJ Schroder Bank & Trust Company, at the telephone
number set forth below:
Telephone: (212) 858-2657
Very truly yours,
Tom's Foods Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF TOM'S FOODS INC. OR IBJ SCHRODER BANK & TRUST COMPANY OR AUTHORIZE YOU
TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
2
<PAGE> 1
EXHIBIT 99.4
INSTRUCTION TO REGISTERED HOLDER AND/OR
DTC PARTICIPANT FROM BENEFICIAL OWNER
OF
10 1/2% SENIOR SECURED NOTES DUE 2004
OF
TOM'S FOODS, INC.
TO REGISTERED HOLDER AND/OR DTC PARTICIPANT:
The undersigned hereby acknowledges receipt of the prospectus dated
1997 (the "Prospectus") of Tom's Foods, Inc., a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange 10 1/2% Senior Secured Notes due 2004 (the
"Exchange Notes") for any and all of its outstanding 10 1/2% Senior Secured
Notes due 2004 (the "Old Notes"). Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or DTC participant, as to
the action to be taken by you relating to the Exchange Offer with respect to the
Old Notes held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$
--------------------------------------
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account of
the undersigned (insert principal amount of Old Notes to be tendered, (if
any):
$
--------------------------------------
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
Exchange Notes acquired by the undersigned pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the undersigned, (ii) the
undersigned has no arrangement or understanding with any person to participate
in a distribution of such Exchange Notes, (iii) the undersigned is not engaged
in and does not intend to engage in a distribution of such Exchange Notes and
(iv) the undersigned is not an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"). If
the undersigned is a broker-dealer (whether or not it is also an "affiliate")
that will receive Exchange Notes for its account in exchange for Old Notes, it
represents that such Old Notes were acquired as a result of market-making
activities or other trading activities, and acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such exchange Notes. By acknowledging that it will deliver, and by
delivering, a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes, the undersigned is not deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
3
<PAGE> 2
SIGN HERE
Name of beneficial owner(s):
----------------------------------------------------
Signature(s):
--------------------------------------------------------------------
Name(s) (please print):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Taxpayer identification or Social Security Number:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Date:
---------------------------------------------------------------------------
4
<PAGE> 1
EXHIBIT 99.5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the financial statements of TOM's FOODS INC. included in this registration
statement and have issued our report thereon dated February 14, 1997. Our audits
were made for the purpose of forming an opinion on the financial statements
taken as a whole. Schedule 1 identified in Item 21(b) is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the financial statements and, in our
opinion, fairly states in material respects the financial data to be set forth
therein in relation to the financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 2117
<SECURITIES> 0
<RECEIVABLES> 27632
<ALLOWANCES> 8680
<INVENTORY> 9858
<CURRENT-ASSETS> 32744
<PP&E> 79573
<DEPRECIATION> 24610
<TOTAL-ASSETS> 139790
<CURRENT-LIABILITIES> 25382
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 42725
<TOTAL-LIABILITY-AND-EQUITY> 139790
<SALES> 205856
<TOTAL-REVENUES> 205856
<CGS> 133624
<TOTAL-COSTS> 73897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1665)
<INTEREST-EXPENSE> 9402
<INCOME-PRETAX> (11067)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11067)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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