<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1997
REGISTRATION NO. 333-38853
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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)
------------------------
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)
------------------------
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. [ ]
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.
================================================================================
<PAGE> 2
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
DECEMBER 31, 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. On or after January 1, 1999 and
conditioned upon the Company having reached a certain Consolidated Fixed Charge
Coverage Ratio (as defined), up to an additional $10.0 million aggregate
principal amount of Exchange Notes may be issued in exchange for the Class A
Preferred Stock (as defined). See "Description of Capital Stock -- Preferred
Stock".
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 September 6, 1997, $18.9 million), inventory (at September
6, 1997, $9.6 million) (and certain assets and rights relating thereto), certain
funds (at September 6, 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 September 6, 1997, $2.8 million) the Company's property,
plant and equipment located at its plant in Taylor County, Florida (at September
6, 1997, $4.7 million) and certain other parcels of real property (at September
6, 1997, approximately $300,000), (such excluded collateral, collectively, the
"Excluded Collateral"). As of September 6, 1997, the assets and properties of
the Company, other than the Excluded Collateral (which as of September 6, 1997
constituted 27.3% of the total assets and properties of the Company), had a net
book value of $100.3 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 September 6, 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 was
$77.3 million (not including unused commitments of $14.0 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.
------------------------
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, provided that such broker-dealer acquired the Old Notes as a result of
market-making activities or other trading activities and not directly from the
Company. 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 management believes,
based on revenues, 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 943 independent distributors, which operate approximately 2,127
sales routes, and Company employees, who operate approximately 221 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 September 6, 1997, the Company had net sales
of $213.8 million and Adjusted EBITDA (as defined) of $12.6 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.
Management believes 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
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<PAGE> 5
1996, a 2.3% increase over 1995 and a compound annual growth rate of 4.6% 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 September 6, 1997, Adjusted
EBITDA increased 53.2% 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
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<PAGE> 6
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 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 36-week period ended September 6, 1997,
these new or updated products represented 27.9% 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 36-week period ended September 6, 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. 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
36-week period ended September 6, 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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<PAGE> 7
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 September 6, 1997, $8.5 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 September 6, 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 $14.0 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 September
6, 1997, $18.9 million) and inventory (at
September 6, 1997, $9.6 million) (and certain
assets and rights relating thereto), certain
funds (at September 6, 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 September 6,
1997, $2.8 million), the Company's property,
plant and equipment located at its plant in
Taylor County, Florida (at September 6, 1997,
$4.7 million) and certain other parcels of real
property (at September 6, 1997, approximately
$300,000). As of September 6, 1997, the assets
and properties owned by the Company, other than
the Excluded Collateral, had a book value of
$100.3 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, September
7, 1996 and September 6, 1997 and for fiscal years 1994, 1995 and 1996 and for
the 36-week periods ended September 7, 1996 and September 6, 1997. Also set
forth below are certain pro forma financial data for the Company for fiscal 1996
and the 36-week period ended September 6, 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 36-week
periods ended and as of September 7, 1996 and September 6, 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 36-week period
ended September 6, 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
September 6, 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
$5.5 million for the 36-week period ended September 6, 1997), the Congress Debt
($300,000 for the year ended December 28, 1996 and $700,000 for the 36-week
period ended September 6, 1997) and the STI Debt ($400,000 for the year ended
December 28, 1996 and the 36-week period ended September 6, 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 $4.9 million for the 36-week
period ended September 6, 1997); and (iii) the amortization of debt issuance
costs ($400,000 for the year ended December 28, 1996 and $300,000 for the
36-week period ended September 6, 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 ($8.5 million) and accrued
interest thereon ($100,000); (iii) the exchange of $27.8 million of TFH Debt and
accrued interest thereon for $7.0 million of Class A Preferred Stock and $20.8
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 36-WEEK PERIOD ENDED FISCAL YEAR
------------------------------------------ --------------------------- ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 7, SEPTEMBER 6, 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 $141,369 $149,337 $ 205,856
Cost of goods sold............ (130,774) (125,396) (133,624) (91,249) (92,529) (133,624)
--------- --------- --------- -------- -------- ---------
Gross profit................ 84,876 72,944 72,232 50,120 56,808 72,232
Expenses and other income:
Selling and administrative
expenses.................. (78,937) (75,783) (69,735) (47,364) (52,757) (69,735)
Amortization of goodwill and
intangible assets......... (1,678) (1,678) (1,678) (1,161) (1,161) (1,678)
Other income, net........... 1,890 3,296 1,309 285 1,130 1,309
Restructuring and
nonrecurring charges...... -- (9,570)(a) (3,793)(b) (3,493)(b) -- (4,293)(b)(c)
--------- --------- --------- -------- -------- ---------
(78,725) (83,735) (73,897) (51,733) (52,788) (74,397)
--------- --------- --------- -------- -------- ---------
Income (loss) from
operations................ 6,151 (10,791) (1,665) (1,613) 4,020 (2,165)
Interest expense, net......... (6,405) (7,870) (9,402) (6,271) (7,181) (8,443)(d)
--------- --------- --------- -------- -------- ---------
Loss before income taxes.... (254) (18,661) (11,067) (7,884) (3,161) (10,608)
Provision (benefit) for income
taxes....................... 500 (400) -- 342 346 --
--------- --------- --------- -------- -------- ---------
Net loss.................... $ (754) $ (18,261) $ (11,067) $ (8,226) $ (3,507) $ (10,608)
========= ========= ========= ======== ======== =========
OTHER DATA:
Operating cash flow........... $ 9,372 $ (4,825) $ 8,829 $ 808 $ 3,124 $ 9,788
Investing cash flow........... $ (8,570) $ (7,304) $ (5,376) $ (3,879) $ (3,231) $ (5,376)
Financing cash flow........... $ 1,765 $ 7,115 $ (3,047) $ 1,814 $ 858 $ 48
EBITDA(e)..................... $ 15,588 $ (1,196) $ 6,291 $ 4,206 $ 10,174 $ 5,791
Adjusted EBITDA(f)............ 15,588 8,374 10,084 7,699 10,174 10,084
Cash interest expense(g)...... 7,002 6,765 2,512 752 1,947 7,247(h)
Depreciation and
amortization................ 9,437 9,595 7,956 5,819 6,154 7,956
Capital expenditures.......... 9,006 7,304 5,798 4,001 3,265 5,798
Ratio of Adjusted EBITDA to
net interest expense(i)..... 2.43x 1.06x 1.07x 1.23x 1.42x 1.19x
Ratio of Adjusted EBITDA to
cash interest expense(i).... 2.23 1.24 4.01 10.24 5.23 1.39
Ratio of earnings to fixed
charges(j)(k)............... -- -- -- -- --
Pro forma ratio of earnings to
fixed charges(l)............ --
<CAPTION>
PRO FORMA
-------------
36-WEEK
PERIOD ENDED
SEPTEMBER 6,
1997
-------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C>
INCOME STATEMENT DATA:
Net sales..................... $149,337
Cost of goods sold............ (92,529)
--------
Gross profit................ 56,808
Expenses and other income:
Selling and administrative
expenses.................. (52,757)
Amortization of goodwill and
intangible assets......... (1,161)
Other income, net........... 1,130
Restructuring and
nonrecurring charges...... (500)(c)
--------
(53,288)
--------
Income (loss) from
operations................ 3,520
Interest expense, net......... (5,843)(d)
--------
Loss before income taxes.... (2,323)
Provision (benefit) for income
taxes....................... 346
--------
Net loss.................... $ (2,669)
========
OTHER DATA:
Operating cash flow........... $ 5,115
Investing cash flow........... $ (2,618)
Financing cash flow........... $ (20)
EBITDA(e)..................... $ 9,674
Adjusted EBITDA(f)............ 10,174
Cash interest expense(g)...... 5,565(h)
Depreciation and
amortization................ 6,154
Capital expenditures.......... 3,265
Ratio of Adjusted EBITDA to
net interest expense(i)..... 1.74x
Ratio of Adjusted EBITDA to
cash interest expense(i).... 1.83
Ratio of earnings to fixed
charges(j)(k)...............
Pro forma ratio of earnings to
fixed charges(l)............ --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF SEPTEMBER 6, 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 $ 13,912 $ 14,028
Total assets....................................... 162,403 138,500 139,790 138,013 139,868
Total debt......................................... 70,054 75,297 88,516 95,127 70,333
Class A Preferred Stock............................ -- -- -- -- 7,000
Total shareholders' equity......................... 45,130 27,586 16,519 13,012 33,845
</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, $3.5 million of which was recorded
in the 36-week period ended September 7, 1996. 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 $5.5 million for the 36-week period ended September 6, 1997), the
Congress Debt ($300,000 for the year ended December 28, 1996 and $700,000
for the 36-week period ended September 6, 1997), and the STI Debt ($400,000
for the year ended December 28, 1996 and the 36-week period ended September
6, 1997); (ii) additional interest expense on the Notes and Class A
Preferred Stock ($7.1 million for the year ended December 28, 1996 and $4.9
million for the 36-week period ended September 6, 1997), and; (iii) the
amortization of debt issuance costs ($400,000 for the year ended December
28, 1996 and $300,000 for the 36-week period ended September 6, 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, $3.5
million for the 36-week period ended September 7, 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 $5.5 million for the 36-week
period ended September 6, 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 $4.4 million for the 36-week period ended September 6,
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 $1.1
million for the 36-week period ended September 6, 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 $650,000 and $950,000 for the 36-week periods ended
September 7, 1996 and September 6, 1997, respectively.
(k) The deficiency of the earnings to fixed charges was $700,000, $18.3 million,
$11.1 million, $8.2 million and $3.5 million for the years ended December
31, 1994, December 30, 1995 and December 28, 1996 and for the 36-week
periods ended September 7, 1996 and September 6, 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 $1.7 million for
the year ended December 28, 1996 and the 36-week period ended September 6,
1997, respectively), increasing amortization of debt issuance costs
($400,000 and $300,000 for the year ended December 28, 1996 and the 36-week
period ended September 6, 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 $3.3 million for the
year ended December 28, 1996 and the 36-week period ended September 6, 1997,
respectively). The deficiency of pro forma earnings to fixed charges was
$11.1 million and $2.3 million for the year ended December 28, 1996 and the
36-week period ended September 6, 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 ($8.5 million) and accrued interest thereon ($100,000);
(iii) the exchange of $27.8 million of TFH Debt and accrued interest thereon
for $7.0 million of Class A Preferred Stock and $20.8 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 September 6,
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 $14.0 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
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Stock for 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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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 September 6, 1997, independent distributors operated
approximately 90.6% 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 September 6, 1997, 33 distributors have entered into the 1997
Distributor Agreement, 346 of the distributors operate distributorships under
previous agreements with other terms and conditions and 564 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, contract rights, books and records and products and
proceeds thereof (including insurance proceeds) and certain assets of the
Company under an intercreditor agreement (the "Congress Intercreditor
Agreement") between Congress and the Trustee (as defined). The Congress
Intercreditor Agreement provides that Congress shall have a security interest in
such assets for the limited purpose of exercising its remedies on the inventory
and receivables. See "Description of the Notes -- Security." As of September 6,
1997, the net book value of the Collateral was approximately $100.3 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
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<PAGE> 21
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 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 September 6, 1997, 33 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,
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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 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."
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."
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,
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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."
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."
FRAUDULENT TRANSFER CONSIDERATIONS
Under relevant federal and state fraudulent transfer and similar laws, if a
court were to find, in a bankruptcy or reorganization case or similar proceeding
or in a lawsuit by or on behalf of creditors of the Company, that the Company
received less than fair consideration or reasonably equivalent value for
incurring the indebtedness represented by the Notes, and, at the time of such
incurrence or issuance, as applicable, the
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Company (i) was insolvent or was rendered insolvent by reason of such
incurrence, (ii) was engaged or about to engage in a business or transaction for
which its remaining property constituted unreasonably small capital or (iii)
intended to incur, or believed it would incur, debts beyond its ability to pay
as such debts mature, such court could, among other things, (a) void all or a
portion of the Company's obligations to the holders of the Notes and/or (b)
subordinate the Company's obligations to the holders of the Notes to other
existing and future indebtedness of the Company the effect of which would be to
entitle such other creditors to be paid in full before any payment could be made
on the Notes. The measure of insolvency for purposes of determining whether a
transfer is avoidable as a fraudulent transfer varies depending upon the law of
the jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all of its liabilities were greater than the
value of its property at a fair valuation, or if the present fair salable value
of the debtor's assets were less than the amount required to repay its probable
liability on its debts as they become absolute and mature. There can be no
assurance as to what standard a court would apply in order to determine
solvency.
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
22
<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 September 6, 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 September 6, 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 SEPTEMBER 6, 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............................................ 26 26
-------- --------
Total short-term debt.................................. $ 1,829 $ 26
======== ========
Long-term debt:
TFH Debt.................................................. $ 59,828 $ --
Accrued interest due to TFH............................... 8,004 --
Senior Secured Notes...................................... -- 60,000
Congress Debt............................................. 6,684 --
Industrial Development Revenue Bonds...................... 10,000 10,000
Note payable to STI....................................... 8,475 --
Capital lease and other debt obligations.................. 307 307
-------- --------
Total long-term debt................................... 93,298 70,307
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............................................ -- 20,832
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....................................... (29,713) (30,712)
-------- --------
Total shareholders' equity............................. 13,012 33,845
-------- --------
Total capitalization........................................ $106,310 $111,152
======== ========
</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 36-week periods ended September 6, 1997 and September
7, 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 36-week periods ended September 6, 1997 and September 7, 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 36-week period ended September 6, 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:
Operating cash flow..... $ 11,230 $ 932 $ 3,242 $ 9,372 $ (4,825) $ 8,829
Investing cash flow..... (6,642) (1,138) 5,259 (8,570) (7,304) (5,376)
Financing cash flow..... (639) (64) 1,654 1,785 7,115 (3,047)
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>
36-WEEK PERIOD ENDED
------------------------------
SEPTEMBER 7, SEPTEMBER 6,
1996 1997
(DOLLARS IN THOUSANDS) ------------ ------------
(UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $ 141,369 $ 149,337
Costs of goods sold..... (91,249) (92,529)
------------ ------------
Gross profit.......... 50,120 56,808
Expenses and other
income:
Selling and
administrative
expenses............ (47,364) (52,757)
Amortization of
goodwill and
intangible assets... (1,161) (1,161)
Other income, net..... 285 1,130
Restructuring and
nonrecurring
charges............. (3,493)(b) --
------------ ------------
(51,733) (52,788)
------------ ------------
Income (loss) from
operations.......... (1,613) 4,020
Interest expense, net... (6,271) (7,181)
------------ ------------
Income (loss) before
provision (benefit)
for income taxes.... (7,884) (3,161)
Provision for (benefit
from) income taxes.... 342 346
------------ ------------
Net income (loss)..... $ (8,226) $ (3,507)
============ ============
OTHER DATA:
Operating cash flow..... $ 806 $ 3,124
Investing cash flow..... (3,879) (3,231)
Financing cash flow..... 1,814 856
EBITDA(c)............... 4,206 10,174
Adjusted EBITDA(d)...... 7,699 10,174
Cash interest
expense(e)............ 752 1,947
Depreciation and
amortization.......... 5,819 6,154
Capital expenditures.... 4,001 3,265
Ratio of Adjusted EBITDA
to net interest
expense(f)............ 1.23x 1.42x
Ratio of Adjusted EBITDA
to cash interest
expense(f)............ 10.24 5.23
Ratio of earnings to
fixed charges(g)(h)... -- --
BALANCE SHEET DATA (AS
OF END OF PERIOD):
Working capital
(deficit)............. $ 6,804 $ 13,912
Total assets............ 143,372 138,013
Total debt.............. 89,500 87,123
Class A Preferred
Stock................. -- --
Total shareholders'
(deficit) equity...... 19,360 13,012
</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, $3.5 million
of which was recorded in the 36-week period ended September 7, 1996. 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, $3.8 million for
fiscal 1996 and $3.5 million for the 36-week period ended September 7, 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 $5.5 million for the 36-week
period ended September 6, 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, $650,000 for the 36-week period ended
September 7, 1996 and $950,000 for the 36-week period ended September 6,
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, $8.2 million and $3.5
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 36-week periods ended September
7, 1996 and September 6, 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
36-week period ended September 6, 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 $5.5 million for
the 36-week period ended September 6, 1997), the Congress Debt ($300,000 for the
year ended December 28, 1996 and $700,000 for the 36-week period ended September
6, 1997), and the STI Debt ($400,000 for the year ended December 28, 1996 and
for the 36-week period ended September 6, 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 $4.9 million for the 36-week period ended September
6, 1997); and (iii) the amortization of debt issuance costs ($400,000 for the
year ended December 28, 1996 and $300,000 for the 36-week period ended September
6, 1997).
<TABLE>
<CAPTION>
FISCAL YEAR 36-WEEK
ENDED PERIOD ENDED
DECEMBER 28, SEPTEMBER 6,
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $ 205,856 $149,337
Cost of goods sold.......................................... (133,624) (92,529)
--------- --------
Gross profit.............................................. 72,232 56,808
Expenses and other income:
Selling and administrative expenses....................... (69,735) (52,757)
Amortization of goodwill and intangible assets............ (1,678) (1,161)
Other income, net......................................... 1,309 1,130
Restructuring and nonrecurring charges.................... (4,293)(a)(b) (500)(b)
--------- --------
(74,397) (53,288)
--------- --------
Income (loss) from operations............................. (2,165) 3,520
Interest expense, net(c).................................... (8,443) (5,843)
--------- --------
Loss before income taxes.................................. (10,608) (2,323)
Provision for income taxes.................................. -- 346
--------- --------
Net loss.................................................. $ (10,608) $ (2,669)
========= ========
OTHER DATA:
Operating cash flow......................................... $ 9,788 $ 5,115
Investing cash flow......................................... (5,376) (2,618)
Financing cash flow......................................... 48 (20)
EBITDA(d)................................................... 5,791 9,674
Adjusted EBITDA(e).......................................... 10,084 10,174
Cash interest expense(f).................................... 7,247 5,565
Depreciation and amortization............................... 7,956 6,154
Capital expenditures........................................ 5,798 3,265
Ratio of Adjusted EBITDA to net interest expense(g)......... 1.19x 1.74x
Ratio of Adjusted EBITDA to cash interest expense(g)........ 1.39 1.83
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, $3.5 million of which was recorded in
the 36-week period ended September 7, 1996. 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 $5.5 million for the 36-week period ended September 6, 1997), the
Congress Debt ($300,000 for the year ended December 28, 1996 and $700,000
for the 36-week period ended September 6, 1997), and the STI Debt ($400,000
for the year ended December 28, 1996 and the 36-week period ended September
6, 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 $4.9
million for the 36-week period ended September 6, 1997); and (iii) the
amortization of debt issuance costs ($400,000 for the year ended December
28, 1996 and $300,000 for the 36-week period ended September 6, 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 $4.4 million for the 36-week period ended September 6,
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 $1.1
million for the 36-week period ended September 6, 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 $1.7
million for the year ended December 28, 1996 and the 36-week period ended
September 6, 1997, respectively), increasing amortization of debt issuance
costs ($400,000 and $300,000 for the year ended December 28, 1996 and the
36-week period ended September 6, 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 $3.3 million
for the year ended December 28, 1996 and the 36-week period ended September
6, 1997). The deficiency of pro forma earnings to fixed charges was $11.1
million and $2.3 million for the year ended December 28, 1996 and the
36-week period ended September 6, 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 36-week period ended September 6, 1997 increased 5.6% over the
comparable 1996 period, and sales for fiscal 1996 increased 3.8% over fiscal
1995. For the 36-week period ended September 6, 1997, EBITDA increased 141.9% to
$10.2 million from $4.2 million for the comparable 1996 period. The $10.2
million EBITDA for the 36-week period ended September 6, 1997 increased 32.1%
after giving effect to a $3.5 million restructuring charge bringing Adjusted
EBITDA for the comparable 1996 period to $7.7 million. For fiscal 1996, Adjusted
EBITDA increased 20.4% to $10.1 million after giving effect to a $3.8 million
restructuring charge 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
36-Week Period Ended September 6, 1997 Compared to 36-Week Period Ended
September 7, 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>
THIRTY-SIX WEEKS ENDED
-----------------------------------------------
SEPTEMBER 7, 1996 SEPTEMBER 6, 1997
-------------------- --------------------
(UNAUDITED; DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales......................................... $141,369 100.0% $149,337 100.0%
Cost of goods sold................................ (91,249) (64.5) (92,529) (62.0)
-------- -------- -------- --------
Gross profit.................................... 50,120 35.5 56,808 38.0
Selling and administrative expenses............... (47,364) (33.5) (52,757) (35.3)
Amortization of goodwill and intangible assets.... (1,161) (0.8) (1,161) (0.8)
Other income (expense)............................ 285 0.2 1,130 0.8
Restructuring and non-recurring charges........... (3,493) (2.5) 0 0.0
-------- -------- -------- --------
Income (loss) from operations................... (1,613) (1.1) 4,020 2.7
Interest expense, net............................. (6,271) (4.5) (7,181) (4.8)
-------- -------- -------- --------
Loss before income taxes........................ (7,884) (5.6) (3,161) (2.1)
Provision (benefit) for income taxes.............. 342 0.2 346 0.2
-------- -------- -------- --------
Net loss........................................ $ (8,226) (5.8)% $ (3,507) (2.3)%
======== ======== ======== ========
Adjusted EBITDA................................... $ 7,699 5.4% $ 10,174 6.8%
Depreciation and amortization..................... 5,819 4.1 6,154 4.1
</TABLE>
36
<PAGE> 40
Net Sales
Net sales for the 36-week period ended September 6, 1997 were $149.3
million, an increase of $7.9 million or 5.6%, compared to $141.4 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 $1.5 million, or 1.7%,
to $91.4 million for the 36-week period ended September 6, 1997 from $89.9
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 221 Company-owned and operated routes. Sales to
National Accounts increased $2.3 million, or 6.3% to $39.3 million for the
36-week period ended September 6, 1997 from $37.0 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 $17.3 million for the
36-week period ended September 6, 1997, an increase of $5.1 million compared to
$12.2 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 11.5% for the 36-week period ended September 6, 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 $56.8
million, or 38.0% of net sales, for the 36-week period ended September 6, 1997
from $50.1 million, or 35.5% 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 $5.4 million, or 11.4%, for
the 36-week period ended September 6, 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 5.2% to 5.0%; (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 219 routes from approximately 140 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
36-week periods ended September 6, 1997 and September 7, 1996 was $1.2 million.
37
<PAGE> 41
Other Income (Expense)
Other income (expense) increased $800,000 for the 36-week period ended
September 6, 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 36-week period ended September 6, 1997 was $10.2 million, or
6.8% of net sales, an increase of 32.1% from $7.7 million, or 5.4% 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 $7.2 million for the
36-week period ended September 6, 1997 from the $6.3 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 36-week period ended September 6, 1997 were $93.9
million, with an average effective interest rate of 11.2%, an increase of $15.5
million and a decrease of 0.6 percentage points, compared to $78.4 million in
average outstanding borrowings and an average effective interest rate of 11.8%
for the comparable 1996 period.
Provision for Federal and State Income Taxes
As of September 6, 1997 and September 7, 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 36-week
period ended September 6, 1997 of $3.5 million, compared to a net loss of $8.2
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. The restructuring charge
taken in 1995 related primarily to a charge for restructuring a portion of the
distribution network of approximately $6.5 million which will result in future
cash outlays, the payment of early retirement and severance of approximately
$3.7 million, a non cash write off of certain assets in connection with
management's plans to restructure the sales function of approximately $5.0
million and a non cash write off of certain display equipment and packaging
related to a discontinued product line of approximately $4.0 million. The
effects of recording this restructuring charge will result in lower depreciation
and cost of sales in the future for the assets and packaging written off. The
Company anticipates that the restructuring will be substantially complete by the
end of 1997.
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 36-week period ended
September 6, 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 September 6, 1997, the Company had no
outstanding
42
<PAGE> 46
loans under the revolving line and had $10.8 million in borrowing availability
thereunder. Certain of the Company's long-term obligations were 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 September 6, 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 was to be amortized over 50 months plus interest. Interest accrued
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 $13.9 million as of September 6,
1997 from $6.8 million 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 $3.1 million for the 36-week
period ended September 6, 1997 as compared to $800,000 for the 36-week period
ended September 7, 1996. This was primarily due to stronger operating
performance coupled with a progressive working capital management program and an
increase in accrued liabilities, primarily interest related to the TFH Debt. 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 36-week period ended September 6, 1997 were
$3.3 million compared to $4.0 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 36-week period ended September 7, 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 36-week period ended September 7, 1997 and for fiscal 1996 and 1995,
respectively, the Company spent $1.6 million, $3.7 million (including the
pretzel line) and $3.8 million on its manufacturing facilities and $1.1 million,
$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 ($860,000), ($3.0)
million and $7.1 million for the 36-week period ended September 6, 1997 and in
fiscal 1996 and 1995, respectively. For the 36-week period ended September 6,
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 $1.3 million 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 36-week period ended September 6, 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 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 management believes,
based on revenues, 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 September 6, 1997, Adjusted
EBITDA increased 53.2% 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 36-week period ended September 6, 1997,
these new or updated products represented 27.9% 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 36-week period ended September 6, 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. 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 36-week period ended
September 6, 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 thirty-six weeks of 1997:
TOM'S FOODS NET SALES BY DISTRIBUTION CHANNEL
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
36-WEEK PERIOD
ENDED
FISCAL 1995 FISCAL 1996 SEPTEMBER 6, 1997
----------------- ----------------- -----------------
DISTRIBUTION CHANNEL $ % $ % $ %
-------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Distributor Network(a).................... $130.9 66.0% $128.9 62.6% $ 91.4 61.2%
National Accounts(b)...................... 53.4 26.9 52.8 25.6 39.3 26.3
Contract Sales, Direct Sales, and
Other(c)................................ 14.0 7.1 24.2 11.8 18.6 12.5
------ ----- ------ ----- ------ -----
Total................................ $198.3 100.0% $205.9 100.0% $149.3 100.0%
====== ===== ====== ===== ====== =====
</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 September
6, 1997, 943 independent distributors operated approximately 2,127 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
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<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 September 6, 1997, 33 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 September 6, 1997, 33 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 September 6, 1997, the Company had recognized an obligation on its
balance sheet of $8.5 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 36-week period ending September 6, 1997, the Company
spent $600,000 and $700,000, 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 684(b) Headquarters
Columbus, GA......... 142,000 1950 - 1970 38 Warehouse
Columbus, GA......... 104,000 1967 225 Baked Goods and Sandwich Crackers
Columbus, GA......... 85,000 1926 - 1977 64 Peanuts
Columbus, GA......... 70,000 1929 - 1954 35 Candy
Knoxville, TN........ 116,000 1982 250 Chips
Perry, FL............ 111,000 1982 77 Chips
Corsicana, TX........ 84,000 1963 207 Chips
Fresno, CA........... 47,000 1974 50 Chips
</TABLE>
- ---------------
(a) Number of employees as of September 6, 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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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 September 6, 1997 the Company had approximately 1,630 full-time
employees, including 966 in the manufacturing facilities, 417 in sales and
marketing and 247 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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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.......................... 52 Senior Vice President -- Marketing
Wyatt F. Hearp............................ 50 Vice President -- Manufacturing
Paul C. Serff............................. 58 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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<PAGE> 60
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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<PAGE> 61
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,
advised the Company in connection with the restructuring of the CIBC Debt and
the MassGeneral Debt, and, on behalf of the Company, negotiated with the holders
of such debt. In connection with these negotiations, Heico Holding paid a total
of $600,000 in fees to the holders of the CIBC Debt in consideration for such
holders agreeing to extend the maturity of the CIBC Debt for the period of time
required to complete the 1996 Refinancing. In addition, Heico Holding provided
the Company with services in connection with the negotiations with the holders
of the CIBC Debt and the Mass General Debt which ultimately led to such debt
being sold to TFH. The Company reimbursed Heico Holding for the fees at the
closing of the 1996 Refinancing. In consideration of Heico Holding providing the
foregoing services, the Company transferred to Heico Holding a parcel of its
real property located in Harris County, Georgia and reimbursed Heico Holding for
the fees paid to the holders of the CIBC Debt. 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 September 6, 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 September
6, 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 arms'-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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<PAGE> 96
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
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<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 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
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<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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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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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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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 September 6, 1997 (unaudited)......................... F-3
Statements of Operations for the years ended December 31,
1994, December 30, 1995, December 28, 1996, and the
36-week periods ended September 7, 1996 (unaudited) and
September 6, 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 36-week period ended September 6, 1997
(unaudited)............................................... F-5
Statements of Cash Flows for the years ended December 31,
1994, December 30, 1995, December 28, 1996, and the
36-week periods ended September 7, 1996 (unaudited) and
September 6, 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
(Except with respect to the
matter discussed in Note 10,
to which the date is
October 14, 1997)
F-2
<PAGE> 104
TOM'S FOODS INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, SEPTEMBER 6,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments........................... $ 1,711 $ 2,117 $ 2,866
Accounts and notes receivable, net........................ 13,918 18,519 18,875
Inventories:
Raw materials........................................... 3,012 2,464 2,098
Packaging materials..................................... 3,068 2,643 2,246
Finished goods and work in progress..................... 4,056 4,751 5,231
Other current assets...................................... 2,346 2,250 2,627
-------- -------- --------
Total current assets.................................. 28,111 32,744 33,943
-------- -------- --------
Property, Plant, and Equipment:
Land and land improvements................................ 5,972 5,518 5,546
Buildings................................................. 14,972 14,143 14,346
Machinery, equipment and vehicles......................... 37,765 39,895 41,720
Vending and other distribution equipment.................. 6,955 8,792 9,852
Furniture and fixtures.................................... 7,910 8,191 8,644
Construction in progress.................................. 1,844 3,034 2,067
-------- -------- --------
Total property, plant and equipment................... 75,418 79,573 82,175
Accumulated depreciation.................................. (18,847) (24,610) (28,957)
-------- -------- --------
Net property, plant and equipment..................... 56,571 54,963 53,218
-------- -------- --------
Noncurrent accounts and notes receivable, net............... 555 433 381
Other assets................................................ 1,644 1,709 1,691
Goodwill and intangible assets, net......................... 51,619 49,941 48,780
-------- -------- --------
Total assets.......................................... $138,500 $139,790 $138,013
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 9,229 $ 14,270 $ 9,304
Accrued liabilities....................................... 10,383 8,273 8,270
Borrowings under the revolving line of credit............. 8,000 0 0
Current portion of restructuring reserves................. 3,516 1,152 628
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 26
Current portion of other long-term obligations............ 135 130 0
-------- -------- --------
Total current liabilities............................. 39,676 25,382 20,031
-------- -------- --------
Long-Term Debt:
Senior credit agreement................................... 0 7,363 6,684
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 8,004
Subordinated loan......................................... 7,500 0 0
Industrial development revenue bonds...................... 10,000 10,000 10,000
Capital lease and other debt obligations.................. 1,331 327 307
Note payable.............................................. 0 7,192 8,475
-------- -------- --------
Total long-term debt.................................. 58,884 86,959 93,298
Other long-term obligations................................. 1,121 372 480
Restructuring reserves...................................... 2,934 2,207 2,207
Accrued pension cost........................................ 5,893 6,109 6,743
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 September 6,
1997, respectively...................................... 0 0 0
Additional paid-in capital................................ 42,725 42,725 42,725
Accumulated deficit....................................... (15,139) (26,206) (29,713)
-------- -------- --------
Total shareholders' equity............................ 27,586 16,519 13,012
-------- -------- --------
Total liabilities and shareholders' equity............ $138,500 $139,790 $138,013
======== ======== ========
</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 36-WEEK PERIOD ENDED
-------------------------------------------- ----------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 7, SEPTEMBER 6,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 215,650 $ 198,340 $ 205,856 $ 141,369 $ 149,337
Cost of goods sold................ (130,774) (125,396) (133,624) (91,249) (92,529)
--------- --------- --------- --------- ---------
Gross profit.................... 84,876 72,944 72,232 50,120 56,808
--------- --------- --------- --------- ---------
Expenses and other income:
Selling and administrative
expenses..................... (78,937) (75,783) (69,735) (47,364) (52,757)
Amortization of goodwill and
intangible assets............ (1,678) (1,678) (1,678) (1,161) (1,161)
Other income.................... 1,890 3,296 1,309 285 1,130
Restructuring and nonrecurring
charges...................... 0 (9,570) (3,793) (3,493) 0
--------- --------- --------- --------- ---------
(78,725) (83,735) (73,897) 51,733 (52,788)
--------- --------- --------- --------- ---------
Income (loss) from operations... 6,151 (10,791) (1,665) (1,613) 4,020
Interest expense, net............. (6,405) (7,870) (9,402) (6,271) (7,181)
--------- --------- --------- --------- ---------
Loss before income taxes........ (254) (18,661) (11,067) (7,884) (3,161)
Provision (benefit) for income
taxes........................... 500 (400) 0 342 346
--------- --------- --------- --------- ---------
Net loss........................ $ (754) $ (18,261) $ (11,067) $ (8,226) $ (3,507)
========= ========= ========= ========= =========
</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 (3,507) 0
-------- -------- -------- -------- --------
Balance at September 6, 1997
(unaudited).................. 5,000 $ 0 $ 42,725 $(29,713) $ 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 36-WEEK PERIOD ENDED
------------------------------------------ ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 7, SEPTEMBER 6,
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................... $ (754) $(18,261) $(11,067) $ (8,226) $(3,507)
-------- -------- -------- -------- -------
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization........ 9,437 9,595 7,956 5,819 6,154
Restructuring and nonrecurring
charges........................... 0 9,570 3,793 3,493 0
Provision (benefit) for income
taxes............................. 500 (400) 0 342 346
Loss (gain) on disposal of property,
plant, and equipment.............. 13 244 (121) 97 (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) (5,648) (304)
Inventories....................... 477 1,648 278 (248) 283
Other assets...................... 508 1,600 2,661 1,067 (359)
Accounts payable.................. 1,617 (224) 4,731 1,226 (4,966)
Other liabilities................. (2,902) (6,730) 5,025 2,856 4,860
Prepaid and accrued pension
cost............................ 104 482 216 55 634
Accrued postretirement benefits
other than pensions............. (78) (64) (164) (27) 0
-------- -------- -------- -------- -------
Total adjustments............... 10,126 13,436 19,896 9,032 6,631
-------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities................. 9,372 (4,825) 8,829 806 3,124
-------- -------- -------- -------- -------
Cash Flows from Investing Activities:
Additions to property, plant, equipment
and vending machines................. (9,006) (7,304) (5,798) (4,001) (3,265)
Proceeds from disposal of property,
plant and equipment.................. 436 0 422 122 34
-------- -------- -------- -------- -------
Net cash used in investing
activities................... (8,570) (7,304) (5,376) (3,879) (3,231)
-------- -------- -------- -------- -------
Cash Flows from Financing Activities:
Repayments of long-term debt........... (3,255) (4,218) (10,252) (10,112) (1,267)
Proceeds from long-term debt........... 0 8,931 9,000 13,721 2,123
Proceeds from sale of vending
machine leases....................... 5,040 2,402 300 300 0
Refinancing costs...................... 0 0 (2,095) (2,095) 0
-------- -------- -------- -------- -------
Net cash provided by (used in)
financing activities......... 1,785 7,115 (3,047) 1,814 856
-------- -------- -------- -------- -------
Increase (decrease) in cash and
short-term investments................. 2,587 (5,014) 406 (1,259) 749
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 $ 452 $ 2,866
======== ======== ======== ======== =======
Interest paid during the year............ $ 7,002 $ 6,765 $ 2,512 $ 752 $ 1,947
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 SEPTEMBER 6, 1997 AND FOR THE 36-WEEK PERIODS ENDED
SEPTEMBER 7, 1996 AND SEPTEMBER 6, 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 ("TFCC"), 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 in accordance with paragraph 5 of Accounting
Principles Board No. 16, "Accounting for Business Combinations." 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 September 6, 1997 and for the 36-week
periods ended September 7, 1996 and September 6, 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>
F-7
<PAGE> 109
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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 useful lives as
follows.
<TABLE>
<S> <C>
Assembled staff............................................. 20 years
Trademarks.................................................. 40 years
Distribution system......................................... 35 years
Goodwill.................................................... 40 years
</TABLE>
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
F-8
<PAGE> 110
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 determined the effect of this statement on its
financial statements is not material.
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 $67,000 for the 36-week period ended September
6, 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
$5,460,000 for the 36-week period ended September 6, 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
F-9
<PAGE> 111
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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. This reserve primarily represented the
legal and bad debt costs associated with the takeover of the single-route
distributors. This involved the takeover of the single route distributors
including the write off of accounts and notes receivable and the repossession of
assets, operation of the route by the Company for a period of time, and
subsequent sale of the route to a multi-route distributor. Management adopted
the plan in the fourth quarter of 1995 through communication to its sales and
marketing department and through notification to a large portion of the affected
distributors. The Company anticipates that the conversion will be substantially
complete by the end of 1997. 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. The
nonrecurring charges of $12,765,000 are primarily related to the payment of
early retirement and severance of approximately $3,700,000, a non cash write off
of certain assets in connection with management's plans to restructure the sales
function of approximately $5,000,000 and a non cash write off of certain display
equipment and packaging related to a discontinued product line of approximately
$4,065,000. The effects of recording this restructuring charge will result in
lower depreciation and cost of sales in the future for the assets and packaging
written off. The severance benefits were primarily related to the Company's
announcement of a change in the sales and administrative functions as a result
of changing a portion of the distribution system from single-routes to multiple
routes. The Company also offered and accepted from employees an early retirement
option in the fourth quarter of 1995. As a result of changing the distribution
system, the Company identified and eliminated certain assets associated with the
single route concept. Those assets were primarily sales office furniture and
equipment, warehouses, warehouse equipment, and information systems. The
majority of the retirement benefits were paid in the fourth quarter of 1995 and
the payment for the severance arrangements were completed in early 1996.
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 36-week period ended September 6, 1997, the Company
charged approximately $136,000 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 September 6, 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 $ 3,315
Trade accounts receivable....................... 20,394 23,860 22,363
Less allowance for doubtful accounts............ (9,349) (8,680) (6,422)
-------- -------- --------
14,473 18,952 19,256
Less current portion............................ (13,918) (18,519) (18,875)
-------- -------- --------
Noncurrent accounts and notes receivable,
net...................................... $ 555 $ 433 $ 381
======== ======== ========
</TABLE>
F-10
<PAGE> 112
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 noted below, subsequent to
December 31, 1996, the Company settled the guaranteed amount by paying
$10,000,000 in full satisfaction of the note payable under guarantee obligations
(Note 4) of approximately $8,500,000 and as a settlement of the remaining
guaranteed amount. This remaining settlement amount was reserved for as of
December 28, 1996. Therefore, the ultimate amount of the Company's guaranteed
repayment did 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 September 6, 1997, the Company has recognized
a note payable of $8,475,000 related primarily to defaulted notes from
distributors. The Company also has potential contingent liability to the
financial institution for guaranteed debt. Subsequent to September 6, 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 September 6, 1997, 33
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-11
<PAGE> 113
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Long-term debt as of December 30, 1995, December 28, 1996, and September 6,
1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Senior credit agreement..................................... $ 0 $ 8,896 $ 8,487
Less current portion of senior credit agreement........... 0 (1,533) (1,803)
------- ------- -------
Long-term portion of senior credit agreement......... 0 7,363 6,684
Term loan from TFH.......................................... 0 59,828 59,828
Accrued interest due to TFH................................. 0 2,249 8,004
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 8,475
Capital lease and other debt obligations; secured by
computers, office equipment, and vending machines......... 1,619 351 333
Less current portion of capital lease obligations......... (288) (24) (26)
------- ------- -------
Long-term portion of capital lease obligations....... 1,331 327 307
------- ------- -------
Long-term debt....................................... $58,884 $86,959 $93,298
======= ======= =======
</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 $3,015,000 were
outstanding under the revolving loan as of December 28, 1996 and September 6,
1997, respectively. At December 28, 1996 and September 6, 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-12
<PAGE> 114
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.
In fiscal 1996, the Company recorded $3,800,000 in nonrecurring
transactions costs directly related to the refinancing of its long-term
obligations and equity refinancing discussed in Note 1. The nonrecurring
transaction costs recorded in 1996 related primarily to the payment of legal
fees of approximately $1,000,000, the payment of fees related to the new senior
debt agreement of approximately $700,000 and the payment of fees and costs
associated with the elimination of the old senior debt agreement of
approximately $2,050,000. The legal fees were primarily related to the drafting
and negotiations for the changes in the structure of the parent company of Tom's
Foods Inc. and the related equity interest (Note 1). The fees noted above did
not materially change the future amortization expense related to the new senior
debt agreement.
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.
F-13
<PAGE> 115
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-14
<PAGE> 116
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-15
<PAGE> 117
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
F-16
<PAGE> 118
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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."
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.
F-17
<PAGE> 119
TOM'S FOODS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
10. SUBSEQUENT EVENT
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
has an aggregate liquidation preference of $7,000,000 and was issued in exchange
for $7,000,000 of the outstanding term loan from TFH discussed in Note 4. The
Class B preferred stock has an aggregate liquidation preference of $21,700,000
and was issued in exchange for the remaining outstanding term loan from TFH
discussed in Note 4. The preferred stock is non voting except in certain
circumstances. The Class A preferred stock ranks senior to the Class B preferred
stock. Dividends of on the Class A preferred stock and the Class B preferred
stock accrue at a rate of 10.5% and 9.5%, respectively. Unpaid dividends
increase the liquidation preference of the respective shares. Upon a change in
control, holders of up to $10,000,000 of Class A preferred stock will be
entitled to require the Company to purchase these shares at 100% of the
liquidation preference at that date of purchase. On or after January 1, 1999, up
to an aggregate of $10,000,000 of Class A preferred stock may be exchangeable,
at the Company's option, for an equal amount of subordinated debt, only if the
Company meets certain financial targets, as defined.
F-18
<PAGE> 120
============================================================
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> 121
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
- ------- -----------
<C> <S>
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
</TABLE>
II-1
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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
10.12** Employment Agreement between the Company and Rolland G.
Divin, dated January 6, 1995
10.13** Employment Agreement between the Company and Paul C. Serff,
dated May 16, 1991, as amended July 9, 1992
10.14** Employment Agreement between the Company and Gerald Barker,
dated October 14, 1997
10.15** Agreement between the Company and S. Albert Gaston, dated
October 14, 1997
10.16** Registration Rights Agreement by and among the Company and
TFH Corp., dated October 14, 1997
10.17** Executive Incentive Plan
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.
** Filed herewith.
(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
II-2
<PAGE> 123
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.
(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> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Columbus, Georgia on December 31, 1997.
TOM'S FOODS INC.
By /s/ ROLLAND G. DIVIN
------------------------------------
Rolland G. Divin
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROLLAND G. DIVIN President, Chief Executive Officer December 31, 1997
- --------------------------------------------- and Director (Principal Executive
Rolland G. Divin Officer)
* Senior Vice President and Chief December 31, 1997
- --------------------------------------------- Financial Officer (Principal
S. Albert Gaston Financial and Accounting Officer)
* Director December 31, 1997
- ---------------------------------------------
Michael E. Heisley
* Assistant Secretary and Director December 31, 1997
- ---------------------------------------------
Stanley H. Meadows
* Director December 31, 1997
- ---------------------------------------------
Thomas C. Mattick
* Director December 31, 1997
- ---------------------------------------------
Emily Heisley Stoeckel
* Director December 31, 1997
- ---------------------------------------------
Andrew C. G. Sage II
*By: /s/ ROLLAND G. DIVIN December 31, 1997
---------------------------------------
Rolland G. Divin
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 125
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 the write-off of accounts previously reserved.
<PAGE> 126
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
10.12** Employment Agreement between the Company and Rolland G.
Divin, dated January 6, 1995
10.13** Employment Agreement between the Company and Paul C. Serff,
dated May 16, 1991, as amended July 9, 1992
10.14** Employment Agreement between the Company and Gerald Barker,
dated October 14, 1997
10.15** Agreement between the Company and S. Albert Gaston, dated
October 14, 1997
10.16** Registration Rights Agreement by and among the Company and
TFH Corp., dated October 14, 1997
10.17** Executive Incentive Plan
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
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ----------- ------------
<S> <C> <C>
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.
** Filed herewith.
(b) Financial Statement Schedule:
Schedule 1 -- Valuation and Qualifying Accounts
<PAGE> 1
EXHIBIT 5.1
[MCDERMOTT, WILL & EMERY LETTERHEAD]
December 31, 1997
Tom's Foods Inc.
900 8th Street
Columbus, GA 31902
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
This opinion is furnished to you in connection with the above-referenced
registration statement on Form S-4 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), for the registration of up to $60,000,000 aggregate
principal amount of 10-1/2% Senior Secured Notes due 2004 (the "Exchange
Notes") of Tom's Foods Inc., a Delaware corporation (the "Company"). The
Exchange Notes will be offered in exchange (the "Exchange") for any and all of
the issued and outstanding 10- 1/2% Senior Secured Notes due 2004 of the
Company (the "Old Notes").
The Old Notes were, and the Exchange Notes will be, issued in exchange for
Old Notes pursuant to an Indenture (the "Indenture") dated as of October 14,
1997 between the Company and IBJ Schroder Bank & Trust Company, as Trustee (the
"Trustee") and the related Registration Rights Agreement dated as of October
14, 1997 among the Company and PaineWebber Incorporated (the "Registration
Rights Agreement").
In arriving at the opinion expressed below, we have examined the Registration
Statement, the Indenture, the Registration Rights Agreement, the Exchange
Notes, and such other documents as we have deemed necessary to enable us to
express the opinion hereinafter set forth. In addition, we have examined and
relied, to the extent we deemed proper, on certificates of officers of the
Company as to factual matters, and on originals or copies certified or
otherwise identified to our satisfaction, of all such corporate records of the
Company and such other instruments and certificates of public officials and
other persons as we have deemed appropriate. In our examination, we have
assumed the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as
copies, the genuineness of all signatures on documents reviewed by us and the
legal capacity of natural persons. We
<PAGE> 2
have further assumed that the Exchange Notes have been duly executed and
delivered, all in accordance with authorizing resolutions of the Board of
Directors of the Company.
We express no opinion as to the applicability of, compliance with or effect
of, the law of any jurisdiction other than United States Federal law and the
laws of Delaware, New York and the District of Columbia.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Notes, when duly executed and authenticated in accordance with the
terms of the Indenture, and delivered in exchange for Old Notes in accordance
with the terms of the Indenture, will be valid and legally binding obligations
of the Company and will be entitled to the benefits of the Indenture, except
that the enforceability thereof may be limited by or subject to bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium or other similar
laws now or hereafter existing which affect the rights and remedies of
creditors generally and equitable principles of general applicability.
We hereby consent to the references to our firm under the caption "Legal
Matters" in the Registration Statement and to the use of this opinion as an
exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of January 6,
1995, by and between Tom's Foods Inc., a Delaware corporation (the "Company"),
and Rolland G. Divin ("Executive").
WHEREAS, the Executive has extensive and valuable knowledge and experience
and the Company desires to have the benefit of the Executive's knowledge and
experience; and
WHEREAS, the Company desires to employ Executive and Executive desires to be
employed by the Company on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the promises contained herein, the
parties agree as follows:
1. Employment and Duties. The Company hereby employs Executive, and
Executive hereby accepts employment with the Company, as the President and
Chief Executive Officer of the Company to perform such duties and services as
are customary of an executive in his position and as shall be assigned to him
from time to time by the Board of Directors of the Company (the "Services").
Executive shall report to the Board of Directors of the Company (the "Board").
The Company shall cause the Executive to be nominated and use its best efforts
to elect the Executive director of the Company during the term hereof.
Executive shall serve, without additional compensation, in such additional
capacities, including acting as a director of the Company, as the Board may
from time to time reasonably request.
2. Performance. The Executive agrees to devote his best efforts, energies
and skills on a full time basis during normal working hours to performance of
the Services (except for vacations and reasonable periods of illness or
incapacity), and such other time, attention and energy as may be necessary in
connection with the proper performance of the Services. During the term of
this Agreement, the Executive shall not engage in any other business or
business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage; provided, however, that the Executive
shall not be prevented from (i) investing his assets in such form or manner as
will not require any substantial amount of time or services on the part of the
Executive in the operation of the affairs of the enterprises in which such
investments are made or (ii) engaging in limited outside business activities,
such as serving on the Board of Directors of another corporation or business
entity, a family-owned enterprise, or a charitable, civic or religious
<PAGE> 2
organization which will not conflict with the Executive's Services hereunder.
The principal place for performance of the Services shall be Columbus, Georgia,
and the Company will permit the Executive to perform substantially all of the
Services therefrom. The Executive may be obliged, from time to time, and for
reasonable periods of time, to travel in the performance of the Services.
3. Term of Employment. Executive's employment by the Company under this
Agreement shall begin on the date hereof and shall continue for a period of
twelve (12) months on a continuing basis so that at any given point in time,
Executive has an Agreement for employment for a period of twelve (12) months,
unless sooner terminated as hereinafter provided.
4. Compensation.
(a) For all Services to be performed by Executive hereunder, Executive
shall receive an annual base salary (the "Base Salary") of Two Hundred Fifty
Thousand Dollars ($250,000), payable in accordance with the Company's normal
payroll practices, subject to withholding for federal and state income tax and
FICA.
(b) In addition to the Base Salary, Executive shall be eligible to receive
certain annual incentive compensation for each full year of employment
hereunder based upon the achievement of yearly performance goals established by
the Board. Executive's target annual incentive compensation level shall be
equal to fifty percent (50%) of Base Salary, although Executive may receive up
to seventy-five percent (75%) of Base Salary as annual incentive compensation
for above average performance. Annual incentive compensation, if any, shall be
determined in accordance with the principles established by the Board as set
forth on Exhibit A, with the understanding, however, that Executive shall be
eligible to receive up to seventy-five percent (75%) of Base Salary under the
terms of this Agreement notwithstanding any limitation set forth in Exhibit A.
(c) Executive shall be eligible to receive up to 48,664 shares of Common
Stock, $.01 par value per share, of Tom's Foods Capital Corporation, a Delaware
corporation (the "Common Stock") upon the terms and conditions set forth in the
Restricted Stock Purchase Agreement, a copy of which is attached hereto as
Exhibit B.
5. Expenses.
(a) The Company shall pay or reimburse Executive for any expenses
reasonably incurred by him in performance of the
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<PAGE> 3
Services upon submission by him of vouchers or itemized lists thereof prepared
in compliance with such rules and policies relating thereto as the Company may
from time to time adopt and as may be required in order to permit such payments
as proper deductions to the Company under the Internal Revenue Code and the
rules and regulations adopted pursuant thereto now or hereafter in effect.
(b) In addition to the expenses described above, the Company shall
reimburse Executive for the following expenses:
(i) one-half of the monthly dues owed for membership in the
Chattahoochee River Club;
(ii) COBRA cost for medical coverage for the period covering the first
ninety (90) days of employment or until the Company's coverage becomes
available to Executive, whichever is shorter, minus the Company's bi-weekly
employee cost of $48.00 for family medical and dental coverage;
(iii) reasonable moving expenses incurred by Executive in connection
with his relocation to Columbus, Georgia as follows:
(A) real estate commission on the sale of his home in
Maryland;
(B) closing costs on the purchase of a home of his choice in
Georgia; and
(C) reasonable cost to move household goods; and
(iv) such other fringe benefits, including car allowance, which the
Company may from time to time make available to all executive management
employees, except to the extent that any such fringe benefits are hereafter
eliminated or curtailed for all executive management employees of the
Company.
6. Fringe Benefits.
(a) Executive shall be entitled to participate during the Term in all
employee benefit plans and programs of the Company which are made generally
available from time to time by the Company to its executive management
employees, to the extent that he is eligible under the general terms thereof,
including any major medical and life insurance plans. Such plans and
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<PAGE> 4
programs shall include, without limitation, those described on Exhibit C.
(b) Executive also shall be entitled to receive the following benefits:
(i) up to four (4) weeks of paid vacation leave per calendar year
(leave not used during the year of entitlement shall not be carried forward
to a subsequent year) with the understanding that the operational needs of
the Company take precedence; and
(ii) membership in the Chattahoochee River Club.
7. Confidential Information. Executive acknowledges that (i) he holds a
senior management position with the Company, (ii) in connection with the
Services being rendered under this Agreement, Executive will acquire and make
use of confidential and proprietary information and trade secrets of the
Company and its affiliates, including, but not limited to, information relating
to the Company's organization, method of operation, know how, personnel, sales,
pricing, customers, distributors and suppliers, marketing goals and plans, as
well as financial statements, new product developments, project reports,
internal memoranda, reports and other trade secrets, materials and records of a
proprietary nature which are not generally known to the public and in which the
Company has a protectable interest (collectively, the "Confidential
Information"), (iii) the Confidential Information constitutes a unique and
valuable asset of the Company, (iv) maintenance of the proprietary character of
such information, to the full extent feasible, is important to the Company, (v)
the Confidential Information is sufficiently secret as to derive economic value
from not being generally known to others who could obtain economic value from
its disclosure or use, and (vi) the Confidential Information is currently the
subject of efforts to maintain its secrecy or confidentiality. Executive
recognizes that the Company's business interests require a confidential
relationship between the Company and Executive and the fullest protection and
confidential treatment of the Confidential Information. Therefore, in order to
protect the Confidential Information, Executive agrees as follows:
(a) to hold the Confidential Information in strictest confidence and not
to, directly or indirectly, use or disclose, or aid others in doing so, such
Confidential Information without the written authorization of the Company,
except in connection with the Services being rendered under this Agreement,
for so long as any such Confidential Information may remain
-4-
<PAGE> 5
confidential, secret or otherwise wholly or partially protectable;
(b) to take reasonable steps to safeguard any Confidential Information and
to protect it against disclosure, misuse, espionage, loss and theft; and
(c) to return to the Company upon termination of employment all materials
relating to the Company or its business, including all Confidential
Information, coming into the Executive's possession during the term of this
Agreement.
8. Covenant Not to Compete or Solicit.
(a) So long as Executive is employed by the Company and for a
period of one (1) year thereafter (the "Restricted Period"), Executive shall
not (except in connection with the rendering of Services hereunder), directly
or indirectly, by or for himself or as an agent of another or through others as
his agent:
(i) engage in any other business within the Restricted Territory (as
defined herein) which is the same or substantially similar to the business
as it is then conducted by the Company;
(ii) interfere with the business relationships or disparage the good
name or reputation of the Company or take any action which brings the
Company or its business into public ridicule or disrepute;
(iii) solicit or accept any business from customers, distributors or
suppliers of the Company (except to the extent that such solicitation or
acceptance is with respect to a business not in competition with the
Company), or request, induce or advise customers, distributors or suppliers
of the Company to withdraw, curtail or cancel their business with the
Company;
(iv) solicit for employment or employ or become employed by any past,
present or future employee of the Company, or request, induce or advise any
employee to leave the employ of the Company; or
(v) use or disclose the names and/or addresses of any customer,
distributor, supplier or employee of the Company to any person for any
purpose whatsoever.
-5-
<PAGE> 6
"Restricted Territory" shall mean the states of Georgia, Florida, Alabama,
Delaware, Mississippi, Louisiana, Texas, Arkansas, Kentucky, North Carolina,
South Carolina, Tennessee, West Virginia, Virginia and Maryland. During the
Restricted Period, the Company shall not disparage the good name or reputation
of Executive or take any action which brings Executive into public ridicule or
disrepute.
(b) Executive agrees that if he shall violate any of the
provisions of this Section, the Company shall be entitled to any injunctive
relief, as well as any damages which the Company may be entitled.
(c) The parties agree and acknowledge that the duration,
scope and geographic areas applicable to the covenant not to compete or solicit
described in this Section are fair, reasonable and necessary, that adequate
compensation has been received by Executive for such obligations, and that
these obligations do not prevent Executive from earning a livelihood. If,
however, for any reason any court determines that the restrictions in this
Section are not reasonable, that consideration is inadequate or that Executive
has been prevented from earning a livelihood, such restrictions shall be
interpreted, modified or rewritten to include as much of the duration, scope
and geographic area identified in this Section as will render such restrictions
valid and enforceable.
9. Remedies. Executive acknowledges that he has carefully
read and considered the terms of this Agreement and knows them to be essential
to induce the Company to enter into this Agreement and that any breach of the
provisions contained herein, particularly regarding Section 7 and Section 8,
will result in serious and irreparable injury to the Company and that the
economic injury resulting to the Company from such a breach will be difficult,
if not impossible, to measure. Executive further acknowledges that the
Company's business interests protected hereby are substantial and legitimate.
Therefore, in the event of a breach of any such provisions, the Company shall
be entitled to equitable relief against Executive by way of injunction.
10. Representations of Executive. As a material inducement
to the Company in entering into this Agreement and employing Executive,
Executive hereby represents and warrants to the Company as follows:
(a) Executive is not, nor has ever been, a party to any
employment agreement, express or implied, with any employer which
requires Executive to continue any employment beyond the effective
date of employment
-6-
<PAGE> 7
pursuant to this Agreement, and the undertaking of this employment by
Executive with the Company and compliance with the terms of this
Agreement will not constitute a breach of any agreement to which
Executive is a party or any obligation by which Executive is bound;
(b) Executive has not and will not use or divulge to anyone
any materials or information provided to him in confidence by any
previous employer;
(c) Executive has no obligation to others which is
inconsistent with the terms of this Agreement or with Executive's
faithful performance of his duties as an employee of the Company; and
(d) Executive hereby agrees to indemnify and hold harmless
the Company for any loss or damages incurred by the Company as a
result of Executive's breach of the representations set forth in this
Section 10, including court costs and reasonable attorneys' fees.
11. Termination.
(a) The Company may terminate this Agreement without cause
upon sixty (60) days' prior notice to Executive. In the event of such
termination, or if Executive resigns because of a material breach of this
Agreement by the Company, Executive shall be entitled to receive all unpaid
Base Salary earned to the date of termination and the Company shall continue to
pay to Executive as a severance payment (the "Severance Payment") Executive's
monthly salary as of the date of termination for twelve (12) months following
the termination date; provided, however, that if Executive becomes otherwise
employed any time during such twelve (12) month period, the Company thereafter
shall pay to Executive only one-half of the remaining monthly Severance Payment
due to Executive. In addition, if a change in ownership of the Company results
in constructive dismissal (which shall include a material diminution of the
Executive's responsibilities) of Executive, the Company shall pay to Executive
the Severance Payment and such Severance Payment shall not be reduced due to
Executive's subsequent employment during the twelve (12) month period. If
Executive is terminated or resigns under this paragraph, Executive shall be
entitled to receive all accrued and unpaid incentive compensation and other
bonuses (if any) for the year in which such termination occurs, prorated as of
the date of termination. Any payments pursuant to this paragraph shall
constitute liquidated damages and shall
-7-
<PAGE> 8
be Executive's sole right to compensation in the event of a termination by the
Company without cause. Executive's acceptance of each payment provided for in
this paragraph shall constitute a release of the Company, its officers,
directors and affiliates, from all claims Executive may then have against the
Company, except for the obligation of the Company to continue to make the
Severance Payment for the balance of the 12-month period.
(b) Notwithstanding any other provision hereof, the Company
may terminate this Agreement and all of the Company's obligations hereunder for
"cause" as defined herein. Such termination shall be effected by notice
thereof delivered by the Company to Executive, and shall be effective as of the
date of such notice. As used herein, the term "cause" shall mean conviction of
a felony related to the Company's business and the performance of Executive's
duties hereunder, breach of any statutory or common law duty of loyalty to the
Company, Executive's intentional failure to comply with the terms of this
Agreement, and Executive's Gross Negligence (as defined herein) or willful
misconduct in the performance of the Services. "Gross Negligence" shall mean
the absence of that degree of care which every man of common sense, however
inattentive he may be, exercises under the same or similar circumstances, or
such other meaning as such term may then have under the law of the State of
Georgia.
In the event of termination for cause, Executive shall be
entitled to receive all unpaid Base Salary earned to the date of termination,
but all other rights of Executive hereunder shall terminate as of the effective
date of Executive's termination.
(c) This Agreement shall terminate automatically upon the
death of Executive. In addition to any benefits under any insurance,
retirement or other plan of the Company for Executive, the Company shall pay
within thirty days of the date of death to the Executive's legal
representatives or, if the Executive shall have filed with the Company a
designation of a person to receive such payment, such person, the sum of any
unpaid Base Salary through the date of termination and any accrued and unpaid
incentive compensation or other bonuses (if any) for the year in which such
termination occurs prorated as of the date of termination.
(d) If, during the period of this Agreement, Executive comes
under such illness, physical or mental disability or other incapacity
("Disability") that the Board determines that he is unable to perform his
duties under this Agreement for a period in excess of 60 substantially
consecutive
-8-
<PAGE> 9
days or nonconsecutive periods aggregating more than 120 days within any
six-month period, exclusive of Saturdays, Sundays, holiday or days on which
Executive was on vacation, the Company may terminate this Agreement by giving
notice to Executive of its intention to terminate due to Disability and this
Agreement shall terminate at the end of the month in which such notice was
given. In the event of such termination, the Company shall pay the sum of (i)
any unpaid Base Salary through the date of termination, (ii) any accrued and
unpaid incentive compensation or other bonuses (if any) for the year in which
such termination occurs prorated as of the date of termination, and (iii) the
Severance Payment described in Section 11(a), minus any amounts payable to
Executive under the Company's benefit plans or insurance or social security
payable.
(e) Upon termination of this Agreement, all obligations of
the Company and rights of Executive under this Agreement shall cease, except as
otherwise provided herein. Notwithstanding anything to the contrary contained
herein, the provisions of Sections 7 through 9 shall survive any termination of
this Agreement or employment and shall remain in full force and effect.
12. Entire Agreement; Amendment. This Agreement contains the
entire understanding between the parties and supersedes, and is in lieu of, all
other employment agreements or arrangements relating to the subject matter
hereof between Executive and the Company. This Agreement cannot be changed,
modified, or discharged other than by an agreement in writing signed by the
Company pursuant to authorization of its Board and by Executive.
13. Survival and Benefit. Except as otherwise herein
expressly provided, this Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns, and Executive, his heirs,
executors, administration and legal representatives. The parties agree that
the responsibility for the performance of Executive's duties hereunder may not
be delegated.
14. Severability. In the event that any portion of this
Agreement may be held to be invalid or unenforceable for any reason, it is
agreed that said invalidity or unenforceability shall not affect the other
portions of this Agreement and that the remaining covenants, terms and
conditions or portions thereof shall remain in full force and effect and any
court of competent jurisdiction may so modify or amend the objectionable
provision as to make it valid, reasonable and enforceable.
-9-
<PAGE> 10
15. Waiver. The failure of the Company to insist, in any one
or more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition. No amendment or waiver of any provision of this Agreement shall in
any event be effective unless the same shall be in writing and signed by the
parties hereto, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
16. Governing Law. This Agreement shall be construed and
interpreted under and pursuant to the laws of the State of Georgia irrespective
of the fact that Executive may become a resident of another state or
jurisdiction.
17. Notices. All notices hereunder shall be in writing and
shall be deemed given when delivered by personal delivery (with receipt
therefor) or by certified mail, return receipt requested, first class postage
prepaid, addressed to the parties at their following respective addresses, or
at such other address as may be designated in writing by either party to the
other:
If to the Company:
Tom's Foods, Inc.
900 Eighth Street
Columbus, Georgia 31902
Attention: Michael E. Heisley
With a copy to:
McDermott, Will & Emery
227 W. Monroe Street
Chicago, Illinois 60606-5096
Attention: Stanley H. Meadows, P.C.
If to Executive:
Rolland G. Divin
7449 Rolling Bend Court
Columbus, Georgia 13909
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<PAGE> 11
With a copy to:
Holland & Knight
400 North Ashley Street
Suite 2300
Tampa, Florida 33602
Attention: Byrne Litschgi, Esq.
18. Section Headings. All section headings are contained
herein for convenience only and shall not be considered in the interpretation
of this Agreement.
IN WITNESS WHEREOF, the Company had caused this Agreement to
be executed and Executive has executed this Agreement, all as of the day and
year first above written.
TOM'S FOODS, INC.
By: /s/ Lyn D. Anderson /s/ Rolland G. Divin
----------------------------- ---------------------------------
ROLLAND G. DIVIN
Its: Secretary
----------------------------
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<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT AMENDMENT
THIS EMPLOYMENT AGREEMENT AMENDMENT made as of the 9th day of July,
1992 (this "Amendment") to that certain Employment Agreement (the "Employment
Agreement") dated as of the 16th day of May, 1991, by and between TF
Acquisition Corporation, a Delaware corporation (the "Company"), and Paul Serff
("Employee"). Unless otherwise specifically defined herein, defined terms used
in this Amendment shall have the meanings ascribed to such terms in the
Employment Agreement.
W I T N E S S E T H:
WHEREAS, Employee has been providing valuable services to the Company,
and the Company desires to extend the term of the Employment Agreement; and
WHEREAS, Employee also desires an extension of the term of the
Employment Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, it is hereby agreed:
1. Substitution of Provision Governing Term of Employment. Effective
as of the date first written above, Paragraph Two of the Employment Agreement
shall be deleted in its entirety, and the following provision shall be
substituted in place thereof:
2. Term of Employment. Employee's term of employment by the
Company under this Agreement (the "Employment Term") shall be renewed
as of July 9, 1992, and shall continue for a period of twenty-four
(24) months on a continuing basis so that at any given point in time,
Employee has an agreement for employment for a period of twenty-four
(24) months, unless sooner terminated as hereinafter provided.
2. Effect of Amendment. Except as heretofore and herein specifically
amended, the Employment Agreement shall remain and continue in full force and
effect.
-1-
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date and year first above written.
TF ACQUISITION CORPORATION
By: /s/ Lyn D. Anderson
-----------------------------------
Title: Secretary
--------------------------------
/s/ Paul Serff
--------------------------------------
Paul Serff
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<PAGE> 3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 16th day of May,
1991, by and between TF Acquisition Corporation, a Delaware corporation (the
"Company"), and Paul C. Serff ("Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee have entered into an employee
agreement, dated June 27, 1988 (the "1988 Employment Agreement") pursuant to
which Employee has been serving as the Executive Vice President - Personnel and
Administration of the Company and of Tom's Foods, Inc., a wholly-owned
subsidiary of the Company ("Tom's Foods"); and
WHEREAS, the Company and Employee desire to amend the 1988 Employment
Agreement to clarify the provisions thereof; and
WHEREAS, the Company and Employee desire to enter into this Agreement
as a clarification, amendment and restatement of the 1988 Employment Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
sufficiency and receipt of which hereby are acknowledged, the parties hereto
agree as follows:
1. Position. During the term of his employment with the Company
hereunder, Employee shall serve as (i) Executive Vice President - Personnel
and Administration of the Company and (ii) Executive Vice President - Personnel
and Administration of Tom's Foods, with substantially the same functions,
duties and responsibilities as on the date hereof.
Employee shall diligently devote his entire business skill, time and
effort to his employment hereunder; provided, he shall be entitled annually to
such vacations and sick leave as have been heretofore agreed upon by the
Company and Employee. Notwithstanding the foregoing, and provided that such
activities do not interfere with the fulfillment of Employee's obligations
hereunder, Employee may (i) serve as a director or trustee of any charitable or
non-profit entity; (ii) acquire solely as an investment any securities so long
as (A) he remains a passive investor in such entity, and (B) such entity is
not, directly or indirectly, in competition with the Company or Tom's Foods; or
(iii) serve as a director of any corporation so long as such entity is not,
directly or indirectly, in competition with the Company or Tom's Foods.
-1-
<PAGE> 4
2. Term of Employment. Employee's term of employment by the Company
under this Agreement (the "Employment Term") shall continue from the date
hereof through June 27, 1992, unless sooner terminated as hereinafter provided,
subject to extension as provided below.
On June 27, 1991, the Company shall have the option, in its sole
discretion, to extend this Agreement for an additional term of 12 months
through June 27, 1993; provided, the Company shall not be permitted to extend
the Employment Term beyond said date, at which time this Agreement shall
terminate; and, provided further, in the event the Company extends the
Employment Term pursuant to this Paragraph 2, Employee shall have the option of
either accepting or rejecting such extension.
3. Compensation. As compensation for the services contemplated hereby,
the Company shall pay to Employee during the Employment Term an annual salary
initially equal to $115,000, said amount to be paid in installments not less
frequently than monthly. Such salary will be subject to merit increase reviews
by the Board of Directors of the Company on an annual basis during the
Employment Term.
In addition to his base salary, Employee shall be entitled to
participate in the Company's incentive bonus compensation plan which plan shall
be either (i) a continuation of the incentive bonus compensation plan in effect
for executive management employees of Tom's Foods as of the date hereof or (ii)
such other incentive bonus compensation plan as may be approved and adopted by
the Board of Directors of the Company.
4. Employee Benefits. Employee shall be entitled to participate
during the Employment Term in all employee benefit plans and programs of the
Company which are made generally available from time to time by the Company to
its executive management employees, to the extent that he is eligible
under the general terms thereof, including any major medical and life insurance
plans. These employee benefit plans and programs are listed on Exhibit A,
attached hereto. Employee also shall be entitled to continue to receive the
equivalent of any other fringe benefits which he is currently receiving (also
listed on Exhibit A), except to the extent that any such fringe benefits are
hereafter eliminated or curtailed for all executive management employees of the
Company and/or Tom's Foods.
5. Expenses. The Company shall pay or reimburse Employee for any
expenses reasonably incurred by him in furtherance of his duties
hereunder, including, expenses for club memberships, entertainment, traveling,
meals and hotel accommodations, upon submission by him of vouchers or itemized
lists thereof prepared
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<PAGE> 5
in compliance with such rules and policies relating thereto as the Company may
from time to time adopt and as may be required in order to permit such payments
as proper deductions to the Company under the Internal Revenue Code and the
rules and regulations adopted pursuant thereto now or hereafter in effect.
6. Termination.
(a) Termination for Cause. The Company may terminate
Employee's employment obligations and all of the Company's obligations under
this Agreement for "Cause" (as defined hereinbelow). Such termination shall be
effected by notice thereof delivered by the Company to Employee, and shall be
effective as of the date of such notice. As used herein, "Cause" shall be (i)
Employee's conviction of a felony which involves moral turpitude; or (ii)
Employee's failure to comply with the terms of this Agreement and the failure
by Employee to correct such failure within 10 days after written notice from
the Company; or (iii) Employee's gross negligence or willful misconduct in the
performance of his duties which has a material adverse effect on the Company's
operations, profits or business.
In the event of termination for Cause, Employee shall be entitled to
receive all salary earned to the date of termination, but all other rights of
Employee hereunder shall terminate as of the effective date of Employee's
termination.
(b) Termination by Company Without Cause. In the event that
Employee is terminated by the Company without Cause, (i) Employee shall be
entitled to receive all accrued and unpaid bonuses (including a pro rata
portion of the bonus payable to Employee for the year of his termination when
paid to all other employees participating in the bonus plan); and (ii) Employee
shall be entitled to receive his salary, as though such termination had not
occurred, in equal monthly installments until the then current termination date
of the Employment Term.
(c) Resignation by or Death of Employee. In the event that
Employee either resigns (except in the case of resignation due to Employee's
total disability as provided in subparagraph (d) hereof) or dies during the
Employment Term, Employee or Employee's estate, as the case may be, shall be
entitled to receive all salary and bonuses earned and accrued to the date of
resignation or death, as the case may be (including a pro rata portion of the
bonus payable to Employee for the year of resignation or death when paid to all
other employees participating in the bonus plan), but all other rights of
Employee hereunder shall terminate as of the date of Employee's termination or
date of death, as the case may be.
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<PAGE> 6
(d) Employee's Total Disability. In the event that Employee
is terminated by the Company or Employee resigns, due to Employee's total
disability, (i) Employee shall be entitled to receive all salary and bonuses
earned and accrued to the date of termination (including a pro rata portion of
the bonus payable to Employee for the year in which Employee's total disability
occurred), as well as any other benefits payable under the Company's then
current disability policy, but all other rights of Employee hereunder shall
terminate as of the date of Employee's termination. As used herein, "total
disability" shall mean any physical or mental ailment which prevents Employee
from performing his duties incident to Employee's employment with the Company,
which has continued for a period of 90 consecutive days in any 12- month period
and which is expected to be of permanent duration.
7. Life Insurance. (1) During the Employment Term, the Company
shall maintain, at its expense, life insurance policies on Employee in an
amount sufficient to provide for and solely for the purpose of funding the
repayment of (and limited to the amount of) any indebtedness incurred by
Employee for the purpose of Employee's purchase of shares of capital stock of
the Company pursuant to the Stock Purchase and Stockholders Agreement dated as
of June 6, 1988 among the Company, Employee and other investors listed therein
(the "Stock Purchase Indebtedness"). Employee shall in all cases be named as
the owner, and the estate of Employee shall in all cases be named as the
beneficiary, of any such life insurance policies maintained by the Company
pursuant to this Paragraph 7. Such policies shall provide expressly for their
termination immediately upon payment of the Stock Purchase Indebtedness.
Employee acknowledges that the Company may deduct from Employee's salary an
amount, determined by the Company, necessary to satisfy applicable federal and
state tax withholding requirements to the extent that the provisions of this
Paragraph 7 give rise to taxable compensation to Employee.
8. Protection of Confidential Information.
(a) Covenant. Employee acknowledges that his employment
by the Company will, throughout the term of this Agreement, bring him into
close contact with many confidential affairs of the Company and Tom's Foods,
including information about markets, key personnel, current and prospective
customers, operational methods and other business affairs and methods and other
information not readily available to the public, and plans for future
developments relating thereto. Employee further acknowledges that the services
to be performed under this
____________________
(1) subject to confirmation of insurability.
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<PAGE> 7
Agreement are of a special, unique, unusual, extraordinary and intellectual
character. In recognition of the foregoing, Employee covenants and agrees:
(i) that he will keep secret all material
confidential matters of the Company and Tom's Foods which are
not otherwise in the public domain and will not intentionally
disclose them to anyone outside of the Company or Tom's Foods,
wherever located, either during or after the term of this Agreement,
except with the Company's prior written consent; and
(ii) that he will deliver promptly to the Company
on termination of his employment by the Company, or at any
other time the Company may so request, all memoranda, notes,
records, customer lists, reports and other documents (and all copies
thereof) relating to the business of the Company or Tom's Foods which
he obtained while employed by, or otherwise serving or acting on
behalf of, the Company or Tom's Foods and which he may then posses or
have under his control.
(b) Specific Remedy. If Employee commits a material
breach of any of the provisions of Paragraph 8(), the Company shall have the
right and remedy to have such provisions specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company.
9. Covenant Not to Compete.
(a) Covenant. In the event that Employee resigns or is terminated
for cause by the Company, Employee will not within the states of
Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, Oklahoma, Arkansas,
Kentucky, North Carolina, South Carolina, Tennessee, Virginia, Maryland and/or
Missouri engage in, represent in nay way, be connected with, become employed by
or have any interest in any business or activity competing in any manner with
any business carried on by the Company or Tom's Foods for a period of 1 year
following such termination. In addition, Employee will not (i) for a period of
3 months following the date of such resignation or termination, permit any
person who is at that time employed by the Company or Tom's Foods to join with
Employee in doing business, engaging in, representing in any way, becoming
connected with, becoming employed by or having any interest in any business or
activity competing in any manner with any business carried on by the Company or
Tom's Foods, or (ii) for a period of 1 year following the data of such
resignation or termination, initiate the active solicitation of any person who
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<PAGE> 8
is then an employee of the Company or Tom's Foods to join with Employee in any
of the activities referred to in the preceding clause (i).
(b) Specific Remedy. If Employee commits a material breach
of the provisions of Paragraph 9(a), the Company shall have the right
and remedy to have such provisions specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
10. Independence, Severability and Non-Exclusivity. Each of the
rights and remedies enumerated in Paragraphs 8(b) and 9(b) shall be independent
of the others and shall be severally enforceable and all of such rights and
remedies shall be in addition to and not in lieu of any other rights and
remedies available to the Company under the law or in equity. If any of the
provisions contained in Paragraphs 8(a) and 9(a) or if any of the rights or
remedies enumerated in Paragraphs 8(b) or 9(b), or any part of them, is
hereafter construed to be invalid or unenforceable, the same shall not affect
the remainder of the covenant or covenants, or rights or remedies, which shall
be given full effect without regard to the invalid portions. If the courts of
any one or more jurisdictions shall hold all of or any part of such provisions
wholly unenforceable by reason of the breadth of such scope or otherwise, it is
the intention of the parties that such determination shall not bar or in any
way affect the Company's right to relief in the court of any other jurisdiction
as to failures to observe such provision in such other jurisdictions, the above
provisions as they relate to each jurisdiction, being, for this purpose,
severable into diverse and independent provisions. If any of the provisions
contained in Paragraphs 8(a) and 9(a) is held to be unenforceable because of
the duration of such provision or the area covered thereby, the parties agree
that the court making such determination shall have the power to reduce the
duration and/or area of such provision and in its reduced form said provision
shall then be enforceable.
11. Assignment of Employee Benefits. Absent the prior written
consent of the Company, and subject to the laws of descent and distribution,
Employee shall have no right to exchange, convert, encumber or dispose of the
rights of Employee to receive benefits and payments under this Agreement, which
payments, benefits and rights thereto are non-assignable and non-transferable.
12. Notices. All notices hereunder shall be given in writing by
person delivery or by registered or certified mail addressed to the Company at
its principal place of business and
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<PAGE> 9
to Employee at his residence address as then listed in the Company's records.
13. General.
(a) Governing Law. This Agreement shall be governed and
construed and enforced in accordance with the laws of the State of Delaware,
without giving effect to conflicts of laws principles thereof which might refer
such interpretation to the laws of a different state or jurisdiction.
(b) Captions. The section headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) Entire Agreement. This Agreement sets forth the
entire agreement and understanding of the parties relating to the subject
matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between the parties.
(d) No Other Representations. No representation, promise
or inducement has been made by any party hereto that is not embodied in this
Agreement, and no party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
(e) Successors and Assigns. This Agreement shall inure
to the benefit of and shall be binding upon the Company and Employee and their
respective heirs, executors, personal representatives, successors and assigns.
(f) Amendments; Waivers. This Agreement may be amended,
modified superseded, cancelled, renewed or extended and the terms or covenants
hereof may be waived, only by a written instrument executed by all of the
parties hereto, or in the case of a waiver, by the party waiving compliance.
The failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right of such party at a later
time to enforce the same. No waiver by any party of the breach of any term or
covenant contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 16th day of May, 1991.
/s/ Paul C. Serff
--------------------------------------
PAUL C. SERFF
TF ACQUISITION CORPORATION
By: /s/ Lyn D. Anderson
-----------------------------------
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<PAGE> 11
EXHIBIT A
Employee Benefits
1. Medical Expense Reimbursement Plan
2. Dental Expense Reimbursement Plan
3. Group Life Plan
4. Accidental Death and Dismemberment Plan
5. Travel Accident Plan
6. Education Assistance Program
7. Pension/Retirement Plan
8. Executive Pension Supplement Plans, to include "G" and "V" Plans and
Individual Supplement Agreements
9. Investment Savings Plan
10. Financial Planning and Tax Preparation Assistance
11. Automobile/Gasoline/Maintenance
12. Country Club Membership and Dues (after one year's services)
13. Company Vacation Policy/Minimum Four weeks
14. Nine Paid Holidays
15. Spouse Travel as Approved by President/CEO
16. Home Security Service or System (limit of $2,000 per year)
17. Home Business Phone
18. Airline Club Membership (limit of one)
19. First-Class Air Travel
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<PAGE> 1
Exhibit 10.14
AGREEMENT
This Agreement ("Agreement") is entered into as of October 14,
1997, by and between Tom's Foods Inc., a Delaware corporation (the "Company"),
and Gerald R. Barker ("Executive").
WHEREAS the Company considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel; and
WHEREAS the Board has determined that appropriate steps should
be taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definition of capitalized terms
used in this Agreement is provided in Section 13 hereof.
2. Term of Agreement. This Agreement shall commence on
the date hereof and shall continue in effect through December 31, 2001.
3. Company's Covenants Summarized. In order to induce
the Executive to remain in the employ of the Company, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
described in Section 4 hereof. This Agreement shall not be construed as
creating an express or implied contract of employment and, except as otherwise
agreed in writing between the Executive and the Company, the Executive shall
not have any right to be retained in the employ of the Company.
4. Severance Payments.
4.1 In the event of termination of the Executive without
Cause, Executive shall be entitled to receive all unpaid Base Salary earned to
the date of termination and the Company shall continue to pay to Executive as a
severance payment (the "Severance Payment") Executive's monthly salary as of
the date of termination for twelve (12) months following the termination date;
provided, however, that if Executive becomes otherwise employed any time during
such twelve (12) month period, the Company thereafter shall pay to Executive
only one-half of the remaining monthly Severance Payment due to Executive. In
addition, in the event of a Constructive Dismissal of Executive, the Company
shall pay to Executive the Severance Payment and such Severance Payment shall
not be reduced due to Executive's subsequent employment during the twelve (12)
month period. If Executive is terminated or resigns under this paragraph,
Executive shall be entitled to receive all accrued and unpaid incentive
compensation and other bonuses (if any) for the year in which such termination
occurs, prorated as of the date of termination. Any payments pursuant to this
<PAGE> 2
paragraph shall constitute liquidated damages and shall be Executive's sole
right to compensation in the event of a Constructive Dismissal or termination
by the Company without Cause. Executive's acceptance of each payment provided
for in this paragraph shall constitute a release of the Company, its officers,
directors and affiliates, from all claims Executive may then have against the
Company, except for the obligation of the Company to continue to make the
Severance Payment for the balance of the twelve (12) month period.
In the event of termination for Cause, Executive shall be entitled to
receive all unpaid Base Salary earned to the date of termination, but all other
rights of Executive hereunder shall terminate as of the effective date of
Executive's termination.
4.2 This Agreement shall terminate automatically upon the
death of Executive. In addition to any benefits under any insurance,
retirement or other plan of the Company for Executive, the Company shall pay
within thirty (30) days of the date of death to the Executive's legal
representatives or, if the Executive shall have filed with the Company a
designation of a person to receive such payment, such person, the sum of any
unpaid Base Salary through the date of termination and any accrued and unpaid
incentive compensation or other bonuses (if any) for the year in which such
termination occurs prorated as of the date of termination.
4.3 If, during the period of this Agreement, Executive comes
under such illness, physical or mental disability or other incapacity
("Disability") that the Board determines that he is unable to perform his
full-time duties to the Company for a period in excess of 60 substantially
consecutive days or nonconsecutive periods aggregating more than one hundred
and twenty (120) days within any six (6) month period, exclusive of Saturdays,
Sundays, holiday or days on which Executive was on vacation, the Company may
terminate the Executive by giving notice to Executive of its intention to
terminate due to Disability and this Agreement shall terminate at the end of
the month in which such notice was given. In the event of such termination,
the Company shall pay the sum of (i) any unpaid Base Salary through the date of
termination, (ii) any accrued and unpaid incentive compensation or other
bonuses (if any) for the year in which such termination occurs prorated as of
the date of termination, and (iii) the Severance Payments described in Section
4.1, minus any amounts payable to Executive under the Company's benefit plans
or insurance or social security payable.
4.4 Upon termination of this Agreement, all obligations of
the Company and rights of Executive under this Agreement shall cease, except as
otherwise provided herein.
5. Entire Agreement; Amendment. This Agreement contains the
entire understanding between the parties and supersedes, and is in lieu of, all
other agreements or arrangements relating to the subject matter hereof between
Executive and the Company. This Agreement cannot be changed, modified, or
discharged other than by an agreement in writing signed by the Company pursuant
to authorization of its Board and by Executive.
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<PAGE> 3
6. Survival and Benefit. Except as otherwise herein
expressly provided, this Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns, and Executive, his heirs,
executors, administration and legal representatives.
7. Severability. In the event that any portion of this
Agreement may be held to be invalid or unenforceable for any reason, it is
agreed that said invalidity or unenforceability shall not affect the other
portions of this Agreement and that the remaining covenants, terms and
conditions or portions thereof shall remain in full force and effect and any
court of competent jurisdiction may so modify or amend the objectionable
provision as to make it valid, reasonable and enforceable.
8. Waiver. The failure of the Company to insist, in any one
or more instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition. No amendment or waiver of any provision of this Agreement shall in
any event be effective unless the same shall be in writing and signed by the
parties hereto, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
9. Governing Law. This Agreement shall be construed and
interpreted under and pursuant to the laws of the State of Georgia irrespective
of the fact that Executive may become a resident of another state or
jurisdiction.
10. Notices. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered by personal delivery
(with receipt therefor) or by certified mail, return receipt requested, first
class postage prepaid, addressed to the respective addresses set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
Tom's Foods Inc.
900 8th Street
Columbus, Georgia 31902
Attention: President
To the Executive:
Gerald R. Barker
5041 Donna Sue Drive
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<PAGE> 4
Columbus, Georgia 31907
11. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
12. Section Headings. All section headings are contained
herein for convenience only and shall not be considered in the interpretation
of this Agreement.
13. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(A) "Base Salary" shall mean Executive's then-current annual
base salary.
(B) "Board" shall mean the Board of Directors of the Company.
(C) "Cause" shall mean Executive's conviction of a felony
related to the Company's business and the performance of Executive's
assigned duties, breach of any statutory or common law duty of loyalty
to the Company, Executive's intentional failure to comply with the
terms of this Agreement, and Executive's Gross Negligence (as defined
herein) or willful misconduct in the performance of the Executive's
duties. "Gross Negligence" shall mean the absence of that degree of
care which every person of common sense, however inattentive he or she
may be, exercises under the same or similar circumstances, or such
other meaning as such term may then have under the law of the State of
Georgia.
(D) "Constructive Dismissal" shall mean a constructive
dismissal (which shall include a material diminution of the
Executive's responsibilities) of the Executive following a change in
ownership of the Company.
(E) "Company" shall mean Tom's Foods Inc., a Delaware
corporation and any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
(F) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
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<PAGE> 5
IN WITNESS WHEREOF, the Company had caused this Agreement to be
executed and Executive has executed this Agreement, all as of the day and year
first above written.
TOM'S FOODS INC.
By /s/ S. ALBERT GASTON
-----------------------------------
Name: S. Albert Gaston
Title: Senior Vice President
EXECUTIVE:
/s/ GERALD R. BARKER
-------------------------------------
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<PAGE> 1
EXHIBIT 10.15
AGREEMENT
This Agreement ("Agreement") is entered into as of October 14, 1997, by and
between Tom's Foods Inc., a Delaware corporation (the "Company"), and S. Albert
Gaston ("Executive").
WHEREAS the Company considers it essential to the best interests of its
stockholders to foster the continuous employment of key management personnel;
and
WHEREAS the Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definition of capitalized terms used in this
Agreement is provided in Section 13 hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect through December 31, 2001.
3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company, the Company agrees, under the conditions
described herein, to pay the Executive the Severance Payments described in
Section 4 hereof. This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed in writing
between the Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. Severance Payments.
4.1 In the event of termination of the Executive without Cause, Executive
shall be entitled to receive all unpaid Base Salary earned to the date of
termination and the Company shall continue to pay to Executive as a severance
payment (the "Severance Payment") Executive's monthly salary as of the date of
termination for twelve (12) months following the termination date; provided,
however, that if Executive becomes otherwise employed any time during such
twelve (12) month period, the Company thereafter shall pay to Executive only
one-half of the remaining monthly Severance Payment due to Executive. In
addition, in the event of a Constructive Dismissal of Executive, the Company
shall pay to Executive the Severance Payment and such Severance Payment shall
not be reduced due to
<PAGE> 2
Executive's subsequent employment during the twelve (12) month period. If
Executive is terminated or resigns under this paragraph, Executive shall be
entitled to receive all accrued and unpaid incentive compensation and other
bonuses (if any) for the year in which such termination occurs, prorated as of
the date of termination. Any payments pursuant to this paragraph shall
constitute liquidated damages and shall be Executive's sole right to
compensation in the event of a Constructive Dismissal or termination by the
Company without Cause. Executive's acceptance of each payment provided for in
this paragraph shall constitute a release of the Company, its officers,
directors and affiliates, from all claims Executive may then have against the
Company, except for the obligation of the Company to continue to make the
Severance Payment for the balance of the twelve (12) month period.
In the event of termination for Cause, Executive shall be entitled to receive
all unpaid Base Salary earned to the date of termination, but all other rights
of Executive hereunder shall terminate as of the effective date of Executive's
termination.
4.2 This Agreement shall terminate automatically upon the death of
Executive. In addition to any benefits under any insurance, retirement or
other plan of the Company for Executive, the Company shall pay within thirty
(30) days of the date of death to the Executive's legal representatives or, if
the Executive shall have filed with the Company a designation of a person to
receive such payment, such person, the sum of any unpaid Base Salary through
the date of termination and any accrued and unpaid incentive compensation or
other bonuses (if any) for the year in which such termination occurs prorated
as of the date of termination.
4.3 If, during the period of this Agreement, Executive comes under such
illness, physical or mental disability or other incapacity ("Disability") that
the Board determines that he is unable to perform his full-time duties to the
Company for a period in excess of 60 substantially consecutive days or
nonconsecutive periods aggregating more than one hundred and twenty (120) days
within any six (6) month period, exclusive of Saturdays, Sundays, holiday or
days on which Executive was on vacation, the Company may terminate the
Executive by giving notice to Executive of its intention to terminate due to
Disability and this Agreement shall terminate at the end of the month in which
such notice was given. In the event of such termination, the Company shall pay
the sum of (i) any unpaid Base Salary through the date of termination, (ii) any
accrued and unpaid incentive compensation or other bonuses (if any) for the
year in which such termination occurs prorated as of the date of termination,
and (iii) the Severance Payments described in Section 4.1, minus any amounts
payable to Executive under the Company's benefit plans or insurance or social
security payable.
4.4 Upon termination of this Agreement, all obligations of the Company and
rights of Executive under this Agreement shall cease, except as otherwise
provided herein.
5. Entire Agreement; Amendment. This Agreement contains the entire
understanding between the parties and supersedes, and is in lieu of, all other
agreements or
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<PAGE> 3
arrangements relating to the subject matter hereof between Executive and the
Company. This Agreement cannot be changed, modified, or discharged other than
by an agreement in writing signed by the Company pursuant to authorization of
its Board and by Executive.
6. Survival and Benefit. Except as otherwise herein expressly provided,
this Agreement shall inure to the benefit of and be binding upon the Company,
its successors and assigns, and Executive, his heirs, executors, administration
and legal representatives.
7. Severability. In the event that any portion of this Agreement may be
held to be invalid or unenforceable for any reason, it is agreed that said
invalidity or unenforceability shall not affect the other portions of this
Agreement and that the remaining covenants, terms and conditions or portions
thereof shall remain in full force and effect and any court of competent
jurisdiction may so modify or amend the objectionable provision as to make it
valid, reasonable and enforceable.
8. Waiver. The failure of the Company to insist, in any one or more
instances, upon performance of any of the terms or conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition. No amendment or waiver of any provision of this Agreement shall in
any event be effective unless the same shall be in writing and signed by the
parties hereto, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
9. Governing Law. This Agreement shall be construed and interpreted under
and pursuant to the laws of the State of Georgia irrespective of the fact that
Executive may become a resident of another state or jurisdiction.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered by personal delivery (with
receipt therefor) or by certified mail, return receipt requested, first class
postage prepaid, addressed to the respective addresses set forth below, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon actual receipt:
To the Company:
Tom's Foods Inc.
900 8th Street
Columbus, Georgia 31902
Attention: President
To the Executive:
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<PAGE> 4
S. Albert Gaston
2509 Craigston Drive
Columbus, Georgia 31906
11. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
12. Section Headings. All section headings are contained herein for
convenience only and shall not be considered in the interpretation of this
Agreement.
13. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Base Salary" shall mean Executive's then-current annual base salary.
(B) "Board" shall mean the Board of Directors of the Company.
(C) "Cause" shall mean Executive's conviction of a felony related to the
Company's business and the performance of Executive's assigned duties, breach
of any statutory or common law duty of loyalty to the Company, Executive's
intentional failure to comply with the terms of this Agreement, and
Executive's Gross Negligence (as defined herein) or willful misconduct in the
performance of the Executive's duties. "Gross Negligence" shall mean the
absence of that degree of care which every person of common sense, however
inattentive he or she may be, exercises under the same or similar
circumstances, or such other meaning as such term may then have under the law
of the State of Georgia.
(D) "Constructive Dismissal" shall mean a constructive dismissal (which
shall include a material diminution of the Executive's responsibilities) of
the Executive following a change in ownership of the Company.
(E) "Company" shall mean Tom's Foods Inc., a Delaware corporation and any
successor to its business and/or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(F) "Executive" shall mean the individual named in the first paragraph of
this Agreement.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Company had caused this Agreement to be executed and
Executive has executed this Agreement, all as of the day and year first above
written.
TOM'S FOODS INC.
By /s/ ROLLAND G. DIVIN
Name: Rolland G. Divin
Title: President and Chief Executive Officer
EXECUTIVE:
/s/ S. ALBERT GASTON
-5-
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of October 14,
1997, by and among Tom's Foods, Inc., a Delaware corporation (the "Company")
and TFH Corp., a Delaware corporation (including its successors by merger,
acquisition, reorganization or otherwise, "TFH").
WHEREAS, in exchange for the satisfaction of certain debt obligations of the
Company, the Company issued to TFH 7,000 shares of Class A Exchangeable
Preferred Stock, $.01 par value per share, of the company (the "Class A
Shares") and 21,737 shares of Class B Preferred Stock, $.01 par value per
share, of the Company (the "Class B Shares"); and
WHEREAS, Class A shares with a liquidation preference of up to $10 million
are exchangeable by TFH for certain senior debt securities of the Company
substantially identical (except for the removal of transfer restrictions) to
the 10 1/2% Senior Secured Notes issued by the Company on the date hereof (the
"Exchange Notes");
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company hereby covenants and agrees with TFH as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the United States Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or
any similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Person" shall mean an individual, a corporation, a partnership, a joint
venture, a trust, an unincorporated organization, a limited liability company
or partnership, a government and any agency or political subdivision thereof.
"Registrable Securities" shall mean (i) the Class A Shares and the Class B
Shares and (ii) the Exchange Notes and any other securities into which or for
which any of the Class A Shares or Class B Shares may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise (it being understood that for purposes of this Agreement, a Person
will be deemed to be a holder of Registrable Securities whenever such Person
has the right to then acquire or obtain from the Company any Registrable
Securities, whether or not such acquisition has actually been effected.
"Registration Expenses" shall mean the expenses so described in Section 4.
<PAGE> 2
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
2. Demand Registration.
(a) At any time after the date hereof, the holders of at least twenty five
percent (25%) of the Registrable Securities may request the Company register
under the Securities Act the Registrable Securities held by such requesting
holders in a firm commitment underwritten public offering or any other method
of distribution (including offerings involving a delayed or continuous offering
pursuant to Rule 415 under the Securities Act). Upon receipt of such request,
the Company shall promptly deliver notice of such request to all Persons
holding Registrable Securities who shall then have thirty (30) days to notify
the Company in writing of their desire to be included in such registration.
The right of any Person to participate in such registration shall be
conditioned upon their participation in such underwritten public offering (or
such other method of distribution) and the inclusion of their Registrable
Securities in the underwritten public offering (or such other method of
distribution) to the extent provided herein. The Company will use its best
efforts to expeditiously effect the registration of all Registrable Securities
whose holders request participation in such registration under the Securities
Act and shall keep such registration effective until the Registrable Securities
thereunder shall have been sold, but only to the extent provided for in the
following provisions of this Agreement.
(b) The Company shall have the right to approve the managing underwriter
chosen by the holders of a majority of the Registrable Securities to be sold in
such offering (which approval will not be unreasonably withheld or delayed).
3. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of its securities under the Securities Act, the Company will, as
expeditiously as possible:
(i) use its best efforts diligently to prepare and file with the
Commission a registration statement on the appropriate form under the
Securities Act with respect to such securities, which form shall comply as to
form in all material respects with the requirements of the applicable form
and include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such registration statement to
become and remain effective until completion of the proposed offering;
(ii) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
and to comply with the provisions of the Securities Act with respect to the
sale or other disposition of all securities covered by such registration
statement whenever the seller or sellers of such securities shall desire to
sell or otherwise dispose of the same, but only to the extent provided in
this Agreement;
-2-
<PAGE> 3
(iii) furnish to each selling holder and the underwriters, if any, such
number of copies of such Registration Statement, any amendments thereto, any
documents incorporated by reference therein, the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as such selling holder may reasonably request
in order to facilitate the public sale or other disposition of the securities
owned by such selling holder;
(iv) use every reasonable effort to register or qualify the securities
covered by such registration statement under such other securities or state
blue sky laws of such jurisdictions as each selling holder shall reasonably
request, and do any and all other acts and things which may be necessary
under such securities or blue sky laws to enable such selling holder to
consummate the public sale or other disposition in such jurisdictions of the
securities owned by such selling holder, except that the Company shall not
for any such purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(v) within a reasonable time before each filing of the registration
statement or prospectus or amendments or supplements thereto with the
Commission (or any materials to be provided to the staff of the Commission),
furnish to counsel selected by the holders of Registrable Securities copies
of such documents proposed to be filed (or provided to the staff of the
Commission), which documents shall be subject to the reasonable approval of
such counsel;
(vi) promptly notify each selling holder of Registrable Securities, such
selling holders' counsel and any underwriter and (if requested by any such
Person) confirm such notice in writing, of the happening of any event which
makes any statement made in the registration statement or related prospectus
untrue or which requires the making of any changes in such registration
statement or prospectus so that they 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, as promptly as
practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such prospectus so that, as thereafter deliverable
to the purchasers of such securities covered by such prospectus, such
prospectus will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading;
(vii) use its best efforts to prevent the issuance of any order suspending
the effectiveness of a registration statement, and if one is issued use its
best efforts to obtain the withdrawal of any order suspending the
effectiveness of a registration statement at the earliest possible moment;
-3-
<PAGE> 4
(viii) if requested by the managing underwriter or underwriters (if any),
any selling holder, or such selling holder's counsel, promptly incorporate in
a prospectus supplement or post-effective amendment such information as such
Person requests to be included therein, including, without limitation, with
respect to the securities being sold by such selling holder to such
underwriter or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other terms of an
underwritten offering of the securities to be sold in such offering, and
promptly make all required filings of such prospectus supplement or
post-effective amendment;
(ix) make available to each selling holder, any underwriter participating
in any disposition pursuant to a registration statement, and any attorney,
accountant or other agent or representative retained by any such selling
holder or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information requested by any
such Inspector in connection with such registration statement;
(x) enter into any reasonable underwriting agreement required by the
proposed underwriter(s) for the selling holders, if any, and use its best
efforts to facilitate the public offering of the securities;
(xi) furnish to each prospective selling holder a signed counterpart,
addressed to the prospective selling holder, of (A) an opinion of counsel for
the Company, dated the effective date of the registration statement, and (B)
a "comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case
of the accountants' letter) with
respect to events subsequent to the date of the financial statements, as are
customarily covered (at the time of such registration) in opinions of the
Company's counsel and in accountants' letters delivered to the underwriters
in underwritten public offerings of securities; and
(xii) otherwise cooperate with the underwriters), the Commission and other
regulatory agencies and take all actions and execute and deliver or cause to
be executed and delivered all documents necessary to effect the registration
of any securities under this Agreement.
3. Expenses. All of the expenses incurred in effecting the registrations
provided for in Section 2, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company and fees of one counsel for the selling holders of Registrable
Securities (which counsel shall be selected by the holders of not less than a
majority of the Registrable Securities to be included in any such
registration), underwriting expenses
-4-
<PAGE> 5
(other than fees, commissions or discounts), expenses of any audits incident to
or required by any such registration and expenses of complying with the
securities or blue sky laws of any jurisdictions pursuant to Section 4(iv)
hereof (all of such expenses referred to as "Registration Expenses"), shall be
paid by the Company. .
4. Indemnification. (a) The Company shall indemnify and hold harmless the
selling holder of such securities, each underwriter (as defined in the
Securities Act), and each other Person who participates in the offering of such
securities and each other Person, if any, who controls (within the meaning of
the Securities Act) such seller, underwriter or participating Person
(individually and collectively, the "Indemnified Person") against any losses,
claims, damages or liabilities (collectively the "liability"), joint or
several, to which such Indemnified Person may become subject under the
Securities Act or any other statute or at common law, insofar as such liability
(or action in respect thereof) arises out of or is based upon (i) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading. Except as otherwise provided in Section 6(d), the Company shall
reimburse each such Indemnified Person in connection with investigating or
defending any such liability; provided, however, that the Company shall not be
liable to any Indemnified Person in any such case to the extent that any such
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
preliminary or final prospectus, or amendment or supplement thereto in reliance
upon and in conformity with information furnished in writing to the Company by
such Person specifically for use therein, or upon such statement or omission
therein based on the authority of an expert within the meaning of that term as
defined in the Securities Act (but only if the Company had no reasonable ground
to believe, and did not believe, that the statements made on the authority of
an expert were untrue or that there was an omission to state a material fact);
and provided further, that the Company shall not be required to indemnify any
Person against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is
corrected in the final prospectus or for any liability which arises out of the
failure of any Person to deliver a prospectus as required by the Securities Act
regardless of any investigation made by or on behalf of such Indemnified Person
and shall survive transfer of such securities by such seller.
(b) Each selling holder of any securities included in such registration
being effected, shall indemnify and hold harmless each other selling holder of
any securities, the Company, its directors and officers, each underwriter and
each other Person, if any, who controls the Company or such underwriter
(individually and collectively also the "Indemnified Person"), against any
liability, joint or several, to which any such Indemnified Person may become
subject under the Securities Act or any other statute or at common law, insofar
as such liability (or actions in respect thereof) arises out of or is based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which securities were registered under the Securities Act at the request of
such selling holder, any preliminary prospectus or final prospectus contained
therein, or any
-5-
<PAGE> 6
amendment or supplement thereto, or (ii) any omission or alleged omission by
such selling holder to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in the case
of (i) and (ii) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary or final prospectus, amendment or
supplement thereto in reliance upon and in conformity with information
furnished in writing to the Company by such selling holder specifically for use
therein, and then only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission by the selling holder was not
based on the authority of an expert as to which the selling holder had no
reasonable ground to believe, and did not believe, that the statement made on
the authority of such expert was untrue or that there was an omission to state
a material fact. Such selling holder shall reimburse any Indemnified Person
for any legal fees incurred in investigating or defending any such liability;
provided, however, that such selling holder's obligations hereunder shall be
limited to an amount equal to the proceeds to such selling holder of the
securities sold in any such registration; and provided further, however, that
no selling holder shall be required to indemnify any Person against any
liability arising from any untrue or misleading statement or omission contained
in any preliminary prospectus if such deficiency is corrected in the final
prospectus or for any liability which arises out of the failure of any Person
to deliver a prospectus as required by the Securities Act.
(c) Indemnification similar to that specified in Sections 6(a) and (b)
shall be given by the Company and each selling holder (with such modifications
as may be appropriate) with respect to any required registration or other
qualification of their securities under any federal or state law or regulation
of governmental authority other than the Securities Act.
(d) In the event the Company, any selling holder or other Person receives
a complaint, claim or other notice of any liability or action, giving rise to a
claim for indemnification under Sections 6(a), (b) or (c), the Person claiming
indemnification under such paragraphs shall promptly notify the Person against
whom indemnification is sought of such complaint, notice, claim or action, and
such indemnifying Person shall have the right to investigate and defend any
such loss, claim, damage, liability or action. The Person claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Person against whom
indemnification is sought (unless the indemnifying party fails to promptly
defend, in which case the fees and expenses of such separate counsel shall be
home by the Person against whom indemnification is sought). In no event shall
a Person against whom indemnification is sought be obligated to indemnify any
Person for any settlement of any claim or action effected without the
indemnifying Person's prior written consent.
5. Compliance with Rule 144. In the event that the Company (i) registers a
class of securities under Section 12 of the Exchange Act or (ii) shall commence
to file reports under Section 13 or 15(d) of the Exchange Act, thereafter, the
Company will use its best efforts thereafter to file with the Commission such
information as is required under the Exchange Act for so long as there are
holders of Registrable Securities; and in such event, the Company shall use its
best efforts to take all action as may be required as a condition to the
availability of Rule 144 under the Securities Act (or any comparable successor
rules).
-6-
<PAGE> 7
6. Amendments. The provisions of this Agreement may be amended, and the
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of at least fifty-one percent (51%) of the Registrable
Securities.
7. Transferability of Registration Rights. The registration rights set forth
in this Agreement are transferable to each transferee of Registrable
Securities, other than a transferee whose activities, products or services are
competitive with the activities, products or services of the Company as of the
date of such transfer. Each subsequent holder of Registrable Securities must
consent in writing to be bound by the terms and conditions of this Agreement in
order to acquire the rights granted pursuant to this Agreement.
8. Damages. The Company recognizes and agrees that each holder of
Registrable Securities will not have an adequate remedy if the Company fails to
comply with the terms and provisions of this Agreement and that damages will
not be readily ascertainable, and the Company expressly agrees that, in the
event of such failure, it shall not oppose an application by any holder of
Registrable Securities or any other Person entitled to the benefits of this
Agreement requiring specific performance of any and all provisions hereof or
enjoining the Company from continuing to commit any such breach of this
Agreement.
9. Miscellaneous.
(a) All notices, requests, demands and other communications provided for
hereunder shall be in writing and mailed (by first class registered or
certified mail, postage prepaid), telegraphed, sent by express overnight
courier service or electronic facsimile transmission (with a copy by mail), or
delivered to the applicable party at the addresses indicated below:
If to the Company:
Tom's Foods Inc.
900 8th Street
Columbus, Georgia 31902
Attention: President
Telecopy No.: (706)323-8231
With a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606-5096
Attention: Bernard S. Kramer, Esq.
Telecopy No.: (312) 984-3669
-7-
<PAGE> 8
If to TFH:
TFH Corp.
C/o Heico Holding, Inc.
Three First National Plaza
Suite 5600
Chicago, Illinois 60602
Attention: President
If to any other holder of Registrable Securities:
At such Person's address for notice as set forth in the books and records of
the Company
or, as to each of the foregoing, at such other address as shall be designated
by such Person in a written notice to other parties complying as to delivery
with the terms of this subsection (a). All such notices, requests, demands and
other communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) two days after being deposited in the mail or (ii) one day after
being delivered to the telegraph company, deposited with the express overnight
courier service or sent by electronic facsimile transmission, respectively,
addressed as aforesaid.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
(c) 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.
(d) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the date first set forth above.
TOM'S FOODS INC.
By: ___________
Name:
Title:
TFH CORP.
By: ___________
Name:
Title:
-9-
<PAGE> 1
EXHIBIT 10.17
TFH CORP.
EXECUTIVE INCENTIVE PLAN
FOR CERTAIN EXECUTIVE OFFICERS OF TOM'S FOODS INC.
Approved by the Board of Directors of TFH Corp. on September 29, 1997
<TABLE>
<S> <C>
Purpose: To provide incentives to the senior management of Tom's Foods Inc.
(the "Company") to achieve certain performance targets
Participants: Rolland G. Divin, President and Chief Executive Officer
S. Albert Gaston, Senior Vice President and Chief Financial Officer
Gerald R. Barker, Senior Vice President - Marketing
Allocation of Benefits: All benefits to be received by the participants under this plan will
be allocated among the Participants as follows:
Divin 60%
Gaston 20%
Barker 20%
Grant of Options: TFH will grant to the Participants options to acquire an aggregate of
20% of the Class A Preferred Stock and Class B Preferred Stock issued
to TFH in exchange for existing Company indebtedness. The aggregate
exercise price for these options will be $1,000.
The options will vest in the following annual increments after
consummation of the offering (the "Offering") by the Company of
$60,000,000 of __% Senior Secured Notes Due 2004 (the "Closing"):
Employed by the Company
in senior management
positions through % Vested
------------------------ --------
First anniversary of Closing 33.33%
Second anniversary of Closing 66.67%
Third anniversary of Closing 100.00%
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Upon termination of employment all unvested options will terminate.
All vested options may be exercised at any time.
All options will terminate on December 31, 2002.
TFH will enter into an option agreement with each Participant.
Additional Exercise Events: The options will vest, for those Participants then employed by the
Company, upon: (i) a sale of the Company of 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 become exchangeable
for exchange notes. The options to acquire Preferred Stock shall
apply to any partial exchanges under clause (ii) above, to partial
redemptions or sales under clause (iv) above and partial
exchangeability of the Preferred Stock, to the extent of 20% of the
amount exchanged, redeemed, sold or exchangeable.
Cash Payment: The Participants will receive an aggregate amount in cash equal to 20%
of all cash proceeds received by TFH Corp. upon consummation of the
Offering which are in excess of $35 million; 50% of such amount will
be paid on the Closing Date and the remaining 50% will be paid on
December 31, 1998 to Participants then employed by the Company.
Effective Date of Plan: The effectiveness of this Plan is subject to the consummation of the
Offering and the exchange of existing Company indebtedness held by TFH
Corp. for cash and shares of Class A Preferred Stock and Class B
Preferred Stock.
</TABLE>
-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>
36 WEEK PERIOD
FISCAL YEAR ENDED ENDED PROFORMA
------------------------------------------ --------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 7, SEPTEMBER 6, DECEMBER 28, SEPTEMBER 6,
1994 1995 1996 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Pretax loss........ (754) (18,261) (11,067) (8,227) (3,161) (11,108) (2,669)
Fixed charges...... 7,377 9,002 10,368 6,927 8,127 13,638 1,005
----- ------- ------- ------ ------ ------- -------
6,623 (9,259) (699) (1,300) 4,966 2,530 7,383
Fixed Charges:
Interest expense... 6,405 7,870 9,402 6,271 7,181 8,443 5,843
Preferred stock
dividends........ 0 0 0 0 0 4,407 3,263
Interest factor
relating to
rentals(a)....... 972 1,132 966 655 947 788 996
----- ------- ------- ------ ------ ------- -------
7,377 9,002 10,368 6,926 8,127 13,638 10,052
Ratio of earnings to
fixed charges...... 0.90 (1.03) (0.07) (0.19) 0.61 0.19 0.73
===== ======= ======= ====== ====== ======= =======
</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
December 30, 1997
<PAGE> 1
EXHIBIT 25
_______________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(1)_
________________________
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Terence Rawlins, Assistant Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
TOM'S FOODS, INC.
(Exact name of obligor as specified in its charter)
Delaware 58-1516963
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 EIGHTH STREET
COLUMBUS, GA 31902
(Address of principal executive office) (Zip code)
________________________
(Title of Indenture Securities)
TOM'S FOODS, INC.
10 1/2% Senior Subordinated Notes due 2004, Series B
_______________________________________
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of December 22, 1997
Col. A Col. B
Title of Class Amount Outstanding
Not Applicable
2
<PAGE> 3
Item 4. Trusteeships under other indentures
If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in
any other securities, of the obligor are outstanding, furnish the
following information:
(a) Title of the securities outstanding under each such other
indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of
Section 310(b)(1) of the Act arises as a result of the
trusteeship under any such other indenture, including a
statement as to how the indenture securities will rank as
compared with the securities issued under such other indenture.
Not Applicable
Item 5. Interlocking directorates and similar relationships with the obligor
or underwriters.
If the trustee or any of the directors or executive officers of
the trustee is a director, officer, partner, employee, appointee,
or representative of the obligor or of any underwriter for the
obligor, identify each such person having any such connection and
state the nature of each such connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by the obligor and each director,
partner, and executive officer of the obligor:
As of December 22, 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
Name of Owner Title of Class Amount owned Percent of voting
beneficially securities represented by
amount given in Col. C
<S> <C> <C> <C>
- ------------- --------------- ------------- ------------------------
</TABLE>
Not Applicable
3
<PAGE> 4
Item 7. Voting securities of the trustee owned by underwriters or their
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and
each director, partner and executive officer of each such underwriter:
As of December 22, 1997
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of Voting
beneficially securities represented by
amount given in Col. C
- ----------------- ----------------- ----------------- --------------------------
</TABLE>
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the obligor
owned beneficially or held as collateral security for obligations in
default by the trustee:
As of December 22, 1997
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
- ------------------ ------------------ ----------------------------- -----------------------------
</TABLE>
Not Applicable
Item 9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds as collateral security
4
<PAGE> 5
for obligations in default any securities of an underwriter for the
obligor, furnish the following information as to each class of
securities of such underwriter any of which are so owned or held by
the trustee:
As of December 22, 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
- ------------- -------------- ----------------------- -------------------------
<S> <C> <C> <C>
Not Applicable
</TABLE>
Item 10. Ownership or holdings by the trustee of voting securities of certain
affiliates or securityholders of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10 percent or more of the voting
securities of the obligor or (2) is an affiliate, other than a
subsidiary, of the obligor, furnish the following information as to
the voting securities of such person:
As of December 22, 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially or held as securities represented by
collateral security for amount given in Col. C
obligations in default
- ------------- -------------- ----------------------- -------------------------
<S> <C> <C> <C>
Not Applicable
</TABLE>
Item 11. Ownership or holdings by the trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the
knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to
each class of securities of such any of which are so owned or held by
the trustee:
5
<PAGE> 6
As of December 22, 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C
Nature of Indebtedness Amount Outstanding Date Due
______________________ __________________ ________
<S> <C> <C>
</TABLE>
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to
the trustee, furnish the following information:
As of December 22, 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D
Name of Title of Class Amount owned Percent of voting
Owner beneficially or held as securities represented
collateral security by amount given in
for obligations in Col. C
default
______ _______________ ___________________ ______________________
<S> <C> <C> <C>
</TABLE>
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to
the securities under this indenture. Explain the nature of
any such default.
Not Applicable
(b) If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, or is trustee for more than one outstanding
series of securities under the indenture, state whether
there has been a default under any such indenture or series,
identify the indenture or series affected, and explain the
nature of any such default.
Not Applicable
6
<PAGE> 7
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to
Form T-1, Securities and Exchange Commission File
No. 22-18460).
*2. A copy of the Certificate of Authority of the Trustee
to Commence Business (included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as amended
to date (See Exhibit 4 to Form T-1, Securities and
Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the Trustee, as
amended to date (See Exhibit 4 to Form T-1, Securities
and Exchange Commission File No. 22-19146).
7
<PAGE> 8
5. A copy of each Indenture referred to in Item 4, if the
Obligor is in default. Not applicable.
6. The consent of the United States institutional trustee
required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
The Exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such Exhibits is a reference to the copy
of the Exhibit heretofore filed with the Securities and Exchange Commission, to
which there have been no amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said
item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment
to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
8
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the trustee, IBJ Schroder Bank & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this
statement of eligibility & qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and State
of New York, on the 22nd day of December, 1997.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Terence Rawlins
____________________________
Terence Rawlins
Assistant Vice President
<PAGE> 10
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the issue by Tom's Foods, Inc. of its
10 1/2% Senior Subordinated Notes due 2004, Series B, we hereby consent that
reports of examinations by Federal, State, Territorial, or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Terence Rawlins
____________________________
Terence Rawlins
Assistant Vice President
Dated: As of December 22, 1997
<PAGE> 11
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Dollar Amount
ASSETS in Thousands
------ -------------
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin.............................. $ 41,358
Interest-bearing balances....................................................... $ 314,171
Securities: Held-to-maturity securities.......................................... $ 196,749
Available-for-sale securities........................................ $ 83,084
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold and Securities purchased under agreements to resell.......... $ 10,151
Loans and lease financing receivables:
Loans and leases, net of unearned income.............................$1,920,916
LESS: Allowances for loan and lease losses........................... 59,498
LESS: Allocated transfer risk reserve................................ -0-
Loans and leases, net of unearned income, allowance, and reserve................ $ 1,861,418
Trading assets held in trading accounts........................................... $ 452
Premises and fixed assets (including capitalized leases).......................... $ 3,381
Other real estate owned........................................................... $ 202
Investments in unconsolidated subsidiaries and associated companies............... $ -0-
Customers' liability to this bank on acceptances outstanding...................... $ 122
Intangible assets................................................................. $ -0-
Other assets...................................................................... $ 86,280
TOTAL ASSETS...................................................................... $ 2,556,348
</TABLE>
<PAGE> 12
<TABLE>
LIABILITIES
<S> <C>
Deposits:
In domestic offices............................................................................$ 787,592
Noninterest-bearing.............................................................$ 239,126
Interest-bearing................................................................$ 548,466
In foreign offices, Edge and Agreement subsidiaries and IBFs...................................$1,125,802
Noninterest-bearing.............................................................$ 18,827
Interest-bearing................................................................$1,106,975
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase..................$ 225,000
Demand notes issued to the U.S. Treasury.........................................................$ 50,000
Trading Liabilities..............................................................................$ 61
Other borrowed money:
a) With a remaining maturity of one year or less...............................................$ 57,291
b) With a remaining maturity of more than one year.............................................$ 1,763
c) With a remaining maturity of more than three years..........................................$ 2,242
Bank's liability on acceptances executed and outstanding.........................................$ 122
Subordinated notes and debentures................................................................$ -0-
Other liabilities................................................................................$ 72,909
TOTAL LIABILITIES................................................................................$2,322,782
Limited-life preferred stock and related surplus.................................................$ -0-
EQUITY CAPITAL
Perpetual preferred stock and related surplus....................................................$ -0-
Common stock.....................................................................................$ 29,649
Surplus (exclude all surplus related to preferred stock).........................................$ 217,008
Undivided profits and capital reserves...........................................................$ (13,211)
Net unrealized gains (losses) on available-for-sale securities...................................$ 120
Cumulative foreign currency translation adjustments..............................................$ -0-
TOTAL EQUITY CAPITAL.............................................................................$ 233,566
TOTAL LIABILITIES AND EQUITY CAPITAL.............................................................$2,556,348
</TABLE>
<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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-06-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> SEP-06-1997
<CASH> 2866
<SECURITIES> 0
<RECEIVABLES> 25297
<ALLOWANCES> 6422
<INVENTORY> 9575
<CURRENT-ASSETS> 33943
<PP&E> 82175
<DEPRECIATION> 28957
<TOTAL-ASSETS> 138013
<CURRENT-LIABILITIES> 20031
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 42725
<TOTAL-LIABILITY-AND-EQUITY> 138013
<SALES> 149337
<TOTAL-REVENUES> 149337
<CGS> 92529
<TOTAL-COSTS> 52788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4020
<INTEREST-EXPENSE> 7181
<INCOME-PRETAX> (3161)
<INCOME-TAX> 346
<INCOME-CONTINUING> (3507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3507)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
