<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended May 26, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6566
THORN APPLE VALLEY, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1964066
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26999 CENTRAL PARK BOULEVARD, SUITE 300, SOUTHFIELD, MICHIGAN 48076
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 213-1000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. [x]
The aggregate market value of the voting stock of the Registrant held
by non-affiliates of the Registrant as of August 18, 1995, computed by
reference to the NASDAQ closing price on such date, was $108,261,000.
The number of outstanding shares of Registrant's common stock as of
August 18, 1995 was 5,773,920.
The following document (or portion thereof) has been incorporated by
reference in this Annual Report on Form 10-K: the definitive Proxy Statement
for the 1995 Annual Meeting of Shareholders to be held on October 26, 1995
(Part III).
<PAGE> 2
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
PART I
ITEM 1. BUSINESS
Thorn Apple Valley, Inc. (sometimes referred to hereinafter
collectively with its predecessors and subsidiaries as the "Company") is a
major producer of manufactured meat and poultry products and is one of the
largest slaughterers of hogs in the United States. The Company was originally
incorporated in 1959 as a Michigan corporation. It reincorporated in Delaware
in 1971 and reincorporated in Michigan in 1977. The Company is engaged in the
manufacture and sale of bacon, hot dogs and lunchmeats, hams, smoked sausages
and turkey products, as well as the slaughtering of hogs and the related sale
of fresh pork products. The Company markets its products under premium and
other proprietary brand labels including "Thorn Apple Valley," "Wilson
Certified," "Corn King," "Colonial," "Triple M," "Herrud," "Royal Crown," "Bar
H," "Olde Virginie" and "Cavanaugh Lakeview Farms" and under customer-owned
private labels. The Company sells its products principally to wholesalers,
supermarkets and other manufacturers throughout the United States and in
selected international markets.
Due to market conditions, profit margins on sales of manufactured meat
and poultry products are usually more consistent than profit margins on sales
of fresh meats and by-products. Consumer packaged meat and poultry
manufacturers generally receive higher profit margins on premium labeled items.
On May 30, 1995, the Company purchased certain assets from Foodbrands
America, Inc. and its subsidiaries ("Foodbrands"). The Company acquired
substantially all of Foodbrands' Retail Division ("Wilson") assets used by
Wilson in its business of producing and marketing retail meat products.
The acquired assets include three manufacturing facilities, machinery and
equipment, certain trademarks and trade names, certain other assets and
goodwill. The aggregate purchase price for the assets acquired and the
assumption of certain liabilities was approximately $65.8 million. During the
next five years, Foodbrands has the right to receive from the Company up to an
additional $10 million in accordance with what is being referred to as an
Earnout Agreement (see Note 12 to the Notes to the Consolidated Financial
Statements for further discussion related to the acquisition). Because the
Wilson acquisition occurred during the first week of fiscal 1996 and was
accounted for as a purchase, the Wilson acquisition had no effect (other than
the description set forth in Note 12 to the Notes to Consolidated Financial
Statements) on the Company's financial statements for fiscal 1995 or for
earlier periods.
PRODUCTS, OPERATIONS AND MARKETING
The Company is engaged in a single segment business with two principal
product categories: manufactured meat and poultry products and fresh pork. The
following table shows for the fiscal periods indicated the net sales and
approximate pounds of products shipped for the Company's manufactured products
operations and fresh pork operations.
<TABLE>
<CAPTION>
Fiscal % of Fiscal % of Fiscal % of Fiscal % of Fiscal % of
1991 Sales 1992 Sales 1993 Sales 1994 Sales 1995 Sales
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales (in dollars)
- ----------------------
Manufactured products $368.8 46% $368.4 50% $386.7 53% $416.3 54% $415.4 56%
Fresh pork products 443.2 54% 365.7 49% 336.6 46% 349.1 45% $321.8 43%
Products shipped (in lbs.)
- --------------------------
Manufactured products 292.2 - 320.3 - 337.8 - 351.7 - 378.2 -
Fresh pork products 483.9 - 458.8 - 415.6 - 419.6 - 422.2 -
</TABLE>
<PAGE> 3
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
MANUFACTURED PRODUCTS
The manufactured products operations of the Company's business involve
the production and sale of consumer brand labeled, packaged meat and poultry
products, such as bacon, hot dogs, lunchmeats, hams, smoked sausages and turkey
products. Shipments by category of these products for the five most recent
fiscal years were as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal
Product Category 1991 1992 1993 1994 1995
- ---------------- ---- ---- ---- ---- ----
(in millions of pounds)
<S> <C> <C> <C> <C> <C>
Bacon . . . . . . . . . . . . . . . . 88.9 99.7 100.6 100.7 111.3
Hot dogs and lunchmeats . . . . . . . 74.4 75.7 78.1 72.2 71.1
Hams . . . . . . . . . . . . . . . . 57.8 62.7 67.2 74.1 85.4
Smoked sausages . . . . . . . . . . . 35.9 45.1 51.6 61.3 64.3
Turkey products . . . . . . . . . . . 13.9 17.4 23.9 24.3 25.2
Other . . . . . . . . . . . . . . . . 21.3 19.7 16.4 19.1 20.9
----- ----- ----- ----- ----
Total . . . . . . . . . . . . . . . . 292.2 320.3 337.8 351.7 378.2
</TABLE>
The Company's manufactured products sales division, which has regional
offices, markets the Company's consumer packaged meat and poultry products
using a national sales force which calls on the Company's various customers.
Price lists, product availability, marketing programs and payment terms,
however, are determined by the corporate office. Customers are generally
wholesalers or large supermarket chains.
The Thorn Apple Valley-Grand Rapids division of the Company ("Grand
Rapids"), which is located in Grand Rapids, Michigan, is engaged in the
production and sale of approximately 50 varieties of packaged, table-ready meat
products such as hot dogs, lunchmeats, corned beef and smoked sausage, under
brand names which include "Thorn Apple Valley," "Herrud," "Triple M," and
"Colonial" and other controlled and private label brands.
The Thorn Apple Valley-Deli & Smoked Meats division of the Company
("Smoked Meats"), which is located in Detroit, Michigan, is primarily engaged
in the production and sale of smoked hams, cooked hams, smoked loins, turkey
breasts, deli products and related items. These products are sold to
supermarket chains under various brand names, including "Thorn Apple Valley,"
"Herrud," "Royal Crown," "Bar H," "Colonial," "Olde Virginie" and "Cavanaugh
Lakeview Farms" and other controlled and private label brands.
The Thorn Apple Valley-Carolina division of the Company ("Carolina"),
which is located in Holly Ridge, North Carolina, produces bacon and related
by-products. These items are sold principally to supermarket chains under
brand names which include "Thorn Apple Valley," "Herrud," "Holly Ridge Farm,"
"Colonial" and "Olde Virginie" and other controlled and private label brands.
During the fourth quarter of fiscal 1995, the Company closed its Thorn
Apple Valley-Utah division ("Utah") (which was operated through the Company's
wholly-owned subsidiary, Tri-Miller Packing Co.) as was previously publicly
announced. (See Note 11 to the Notes to the Consolidated Financial
Statements.) The Utah division had produced a wide variety of manufactured
meat products,
2
<PAGE> 4
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
that included hot dogs, hams, bacon and fresh and smoked sausage, and sold such
products primarily under the brand names "Thorn Apple Valley" and "Triple M";
such products are now produced by the Company's Grand Rapids division.
The Company has acquired the following additional manufacturing
divisions resulting from its acquisition of certain assets of the retail
division of Foodbrands (see Note 12 to the Notes to the Consolidated Financial
Statements):
The Thorn Apple Valley-Concordia division of the Company ("Concordia"),
which is located in Concordia, Missouri, and is primarily engaged in the
production of boneless hams and other related smoked meats products.
The Thorn Apple Valley-Dixie division of the Company ("Dixie"), which
is located in Forrest City, Arkansas, and is primarily engaged in the
production of hot dogs and smoked sausage.
The Thorn Apple Valley-Shreveport division of the Company
("Shreveport"), which is located in Shreveport, Louisiana, and is primarily
engaged in the production of specialty products such as natural casing hot
dogs.
FRESH PORK
The Thorn Apple Valley-Frederick division of the Company
("Frederick"), which is located in Detroit, Michigan, is engaged in the
slaughtering and cutting of hogs and the sale of primal cuts of fresh pork
products, including hams, shoulders, loins, ribs, butts and pork bellies, and
of related by-products, such as edible renderings and meat trimmings.
Approximately 3,146,000, 2,891,000 and 2,820,000 hogs were slaughtered by
Frederick in fiscal years 1995, 1994 and 1993, respectively. The Utah division
slaughtered approximately 274,000, 339,000 and 330,000 hogs during fiscal years
1995, 1994 and 1993, respectively. (See Note 11 to the Notes to the
Consolidated Financial Statements for further discussion of Utah).
Sales of products by the Frederick division are ordinarily initiated
and completed by telephone between buyers and Frederick sales personnel. Sales
are also made through brokers located throughout the United States and abroad.
Customers for primal cuts and trimmings are generally wholesalers, supermarket
chains and outside processors. Most edible offal items are cleaned, boxed and
frozen for storage until delivery to the customer. Fat trimmings and some
inedible items are sold to renderers. The Company also further processes some
of its primal cuts into higher margin boneless products.
TRADEMARKS AND LICENSES
The Company owns or has the right to use over 80 various trademarks,
including those described above and certain trademarks purchased from
Foodbrands. The trademarks are valuable to the Company because of the
significant market advantage that name recognition provides in the retail
market served by the Company. Most of the trademarks used by the Company are
registered with the appropriate administrative offices, and the Company intends
to renew each such registration as long as the related trademark is used with
respect to a current line of products.
3
<PAGE> 5
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
DISTRIBUTION AND CUSTOMERS
During fiscal 1995 approximately 19% of the Company's products were
marketed in Michigan. This percentage was approximately 20% for fiscal 1994 and
1993 respectively. The balance of the products were marketed in each of these
years primarily in 46 other states, Washington, D.C., Canada and to Pacific Rim
countries. Sales to customers in foreign countries during fiscal 1995 totaled
approximately $7,000,000. This total was approximately $11,200,000 for fiscal
1994 and approximately $13,300,000 for fiscal 1993.
On a regular basis, the Company sells its fresh pork and manufactured
products to more than 900 customers. These customers consist primarily of
wholesalers, supermarket chains and, in the case of the Company's fresh pork
operations, other manufacturers of meat and poultry products. For fiscal 1995,
approximately 34% of the Company's sales were made to its 10 largest customers,
none of whom accounted for as much as 10% of the Company's sales. The Company
does not have any significant long-term sales commitments except for the sale
of its inedible rendering materials. See "Business-Long Term Royalty
Agreement".
The Company owns and operates a fleet of refrigerated tractor-trailers
and additional trailers which are used for transporting a portion of its
products to customers and to the Company's manufacturing facilities. The
Company also engages the services of contract carriers, including Coast
Refrigerated Trucking Co., Inc., National Food Express, Inc. and Millers
Transport Inc., all wholly-owned subsidiaries of the Company. Products are
shipped to supermarket chains, wholesalers and other meat processors. In
addition to its own delivery equipment, the Company utilizes non-affiliated
carriers or has customers make their own arrangements for delivery.
RAW MATERIALS
The Company's primary raw material is live hogs. The purchase of hogs
accounted for approximately 73% of the total purchases of raw materials made by
the Company during fiscal 1995. Purchases of live hogs are through a network
of buying stations, selected brokers and direct from hog producers mainly in
the states of Michigan, Ohio, Indiana, Illinois and Ontario, Canada. In
November 1994 the Company entered into a 10 year agreement with Michigan
Livestock Exchange ("MLE"), whereby MLE supplies hogs for the Company's
slaughter facility in Detroit, Michigan. This agreement gives the Company the
purchasing power of 43 buying stations throughout the Company's buying area.
Under the terms of the 10 year agreement, in addition to supplying hogs, MLE
manages the Company's hog buying stations. Under this agreement, MLE is
currently supplying approximately 70% of the total hogs being purchased by the
Company. The transportation of hogs to the Frederick facility is primarily in
tractor-trailers owned and operated by independent contractors.
During fiscal 1995, Grand Rapids obtained from Frederick 50% of all of
the pork required in its operations, which constituted approximately 9% of the
cost of the total meat requirements of Grand Rapids. Approximately 56% of the
pork processed during fiscal 1995 at Smoked Meats was obtained from Frederick,
which constituted approximately 41% of its total meat requirements.
Approximately 93% of the pork processed during fiscal 1995 at the Company's
Cavanaugh Lakeview Farms, Ltd. ("Cavanaugh Lakeview Farms") subsidiary was
obtained from either Frederick or Smoked Meats, which constituted substantially
all of its meat requirements. Approximately 41% of the pork bellies processed
by Carolina were obtained from Frederick.
4
<PAGE> 6
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
The Company purchases poultry, beef and other meats required for its
manufactured meat products and other materials such as seasonings, smoking and
curing agents, sausage casings and packaging materials from a number of
readily-available sources.
COMPETITION
The meat packing and manufacturing industry is highly competitive.
The Company competes with large national, regional and local companies, some of
which have substantially greater sales volume, brand name recognition and
financial resources than the Company. Competition is encountered both in the
procurement of raw materials and in the sale of products. The Company's
products also compete with other meat, fish and poultry products. Competition
exists mainly with respect to product quality, name recognition, price and
service.
EMPLOYEES
The Company has approximately 3,800 employees (of which approximately
600 are former employees of Foodbrands who were hired by the Company),
approximately 860 of whom are engaged in slaughtering and cutting hogs,
approximately 2,140 of whom are engaged in the production of the manufactured
meat and poultry products, and approximately 800 of whom are employed in
administration, sales or transportation.
The majority of the Company's production workers are employed under
four union contracts. These contracts are generally for a period of two to four
years and have various expiration dates through the third quarter of fiscal
2000. Although the Company experienced a strike in 1990 at its Grand Rapids
facility, it has historically maintained good labor relations. The unexpired
portions of the existing agreements contain no significant labor cost
increases.
REGULATION
Like other participants in the meat and poultry manufacturing
industry, the Company is subject to various laws and regulations relating to
the construction and maintenance of facilities, production standards and
pollution control administered by federal, state and other government entities,
including the Environmental Protection Agency and corresponding state agencies
such as the Michigan Department of Natural Resources, the United States
Department of Agriculture, and the Occupational Safety and Health
Administration. All of the Company's existing fresh pork and manufactured meat
and poultry products plants are federally inspected by the United States
Department of Agriculture under the Federal Meat Inspection Act. The Company
believes that it is in compliance with all health, environmental and other laws
and regulations in all material respects and that continued compliance with
existing standards will not have a material effect on the Company's results of
operations or financial condition.
LONG-TERM ROYALTY AGREEMENT
In December 1988, the Company sold substantially all of the assets of
its wholly owned subsidiary, Wayne By-Products Company, to an unrelated third
party. In connection with the sale of these assets, the Company entered into
an agreement requiring the Company to sell all its inedible rendering materials
to such third party through 1998. The Company believes that the terms and
conditions of the agreement are at least as favorable as are available from
others.
5
<PAGE> 7
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
PURCHASE AND MANAGEMENT AGREEMENT
In November 1994, the Company entered into a 10 year agreement with
MLE. Under the terms of the agreement, MLE manages the Company's hog buying
stations and provides the Company with hogs in accordance with the Company's
quantity and quality specifications at MLE's hog costs plus certain expenses.
In consideration, the Company pays MLE $83,333 per month as a facilities and
use management fee. In accordance with the agreement, the Company has
purchased $2.0 million of preferred stock of MLE that pays a 6% dividend. The
Company has classified the investment in MLE in other long-term assets on its
consolidated balance sheet.
6
<PAGE> 8
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
ITEM 2. PROPERTIES
The Company's principal plants, all of which are owned by the Company,
are located as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION ACRES (SQ. FT.)
-------- --------- ----------- ---------------
<S> <C> <C> <C>
Detroit, Michigan Hog slaughtering and boning 3.2 218,000
operations
Detroit, Michigan Manufacture of smoked and 4.8 150,000
cooked hams, turkey products,
deli products and related
items
Grand Rapids, Michigan Manufacture of hot dogs, 18.5 135,000
lunchmeats and smoked sausages
Holly Ridge, Manufacture of bacon products 179.0 150,000
North Carolina
Walker, Michigan Poultry boning and manufacture 27.0 45,000
of pork sausage and corned
beef products
Concordia, Missouri (1) Manufacture of boneless hams 17.2 45,000
and other related smoked meat
products
Forrest City, Arkansas (1) Manufacture of hot dogs and 11.3 70,000
smoked sausage
Shreveport, Louisiana (1) Manufacture of specialty 3.6 30,400
products such as natural
casing hot dogs
Ponca City, Oklahoma (2) Manufacture of bone-in hams, 42.0 170,000
spiral sliced hams, lunch
meats and gourmet meat
products
</TABLE>
(1) These manufacturing facilities were acquired on May 30, 1995 in connection
with the Wilson acquisition.
(2) Newly constructed manufacturing facility scheduled to go on-line in
September 1995.
7
<PAGE> 9
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
In addition to the Company's plants, the Company owns and leases
various buildings in Michigan, North Carolina and Utah. These buildings are
used for maintenance, storage, certain manufacturing and other ancillary
services, truck garages and as corporate headquarters.
The land on which each of these properties are located (excluding the
leased properties) is owned by the Company. The properties described above are
subject to mortgages collateralizing outstanding indebtedness in the aggregate
amount of approximately $5.3 million as of May 26, 1995.
The Company believes its plants and equipment are in good repair and
suitable for the present operation of its business. The production facilities
of the plants are being utilized on either a one-shift or two-shift basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various ordinary or routine litigation
incidental to its business, none of which, in the opinion of management, is
deemed to be material.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED SECURITY MATTERS
As of August 18, 1995 there were 536 shareholders of record of the
Company.
The shares of the Company's Common Stock are traded in the
over-the-counter market and their price is quoted on the Nasdaq Stock Market
under the symbol "TAVI." The high and low bid range of the Company's Common
Stock are as reported in the Wall Street Journal and the cash dividends paid
for the past two fiscal years are indicated below.
<TABLE>
<CAPTION>
1995 1994
--------------------------------------- -------------------------------------------
Fiscal High Low Dividends High Low Dividends
Quarter Bid Bid Paid Bid Bid Paid
------- --- --- ---- --- --- ----
<S> <C> <C> <C> <C> <C> <C>
First $25.25 $22.00 $.07 $21.00 $17.25 $.06
Second $30.25 $23.00 $.07 $20.50 $16.75 $.07
Third $30.00 $20.00 $.07 $23.75 $18.25 $.07
Fourth $20.00 $16.62 $.07 $26.50 $21.00 $.07
</TABLE>
8
<PAGE> 10
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended(1)
--------------------------------------------------------------------------------------------
May 31, 1991 May 29, 1992 May 28, 1993 May 27, 1994 May 26, 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 817,330,996 $ 739,733,073 $ 729,909,723 $ 772,098,333 $ 744,542,466
Income
from
operations $ 18,720,723 $ 21,054,846 $ 13,862,567 $ 14,083,373 $ 5,254,886
Income
per common
share from
operations $ 2.82 $ 3.75 $ 2.36 $ 2.40 $ .91
Total assets $ 121,354,675 $ 132,599,976 $ 143,948,845 $ 185,442,085 $ 204,296,365
Total long-term
debt (excluding
current portion) $ 16,684,720 $ 15,068,920 $ 8,844,391 $ 27,936,985 $ 35,464,669
Common stock
subject to
redemption $ 4,209,890 $ - $ - $ - $ -
Cash dividends
per share $ - $ .08 $ .20 $ .27 $ .28
</TABLE>
(1) The Company's fiscal year consists of the 52- or 53-week period ending on
the last Friday in May of each year. Fiscal 1991 was a 53-week fiscal
year and all other years presented in this table were 52-week fiscal
years. Earnings per share figures have been restated for all periods
presented to reflect a three-for-two stock split, effected as a 50% stock
dividend paid on December 23, 1992 to all shareholders of record of the
Company as of the close of business on December 1, 1992, and a
three-for-two stock split, effected as a 50% stock dividend paid on June
14, 1991 to all shareholders of record of the Company as of the close of
business on May 31, 1991.
9
<PAGE> 11
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1995 as Compared to Fiscal 1994
(52 week fiscal year compared to 52 week fiscal year)
The Company's net income for fiscal 1995 decreased 62.7% to $5.3
million, as compared with net income of $14.1 million in fiscal 1994. The
Company accrued a restructuring charge primarily related to the closing of the
Company's Tri-Miller Packing facility in Hyrum, Utah. The restructuring charge
negatively impacted net income by approximately $5.0 million. (See Note 11 to
the Notes to the Consolidated Financial Statements for additional information
on the restructuring charge). The LIFO (last-in, first-out) method of
accounting for inventories had the effect after taxes of increasing earnings
for fiscal 1995 and fiscal 1994 by $1,282,000 and $538,000, respectively.
The Company's results (exclusive of the restructuring charge) during
1995 were negatively impacted from decreased operating margins in both the
manufactured and fresh pork operations. The manufactured products operations
margins decreased primarily from continued competitive industry pressures. The
fresh pork operations margins decreased as a result of higher operating costs
associated with the renovation and expansion project combined with continued
competitive industry margin pressures. The implementation of a very innovative
and complex processing floor at our main slaughter facility has been
significantly more involved and difficult than the Company anticipated. The
Company has worked through many of the problems and is presently building sales
and production levels to decrease per unit operating costs.
Net sales in fiscal 1995 decreased $27.6 million or 3.6%, as compared
with fiscal 1994 levels. The decrease was due primarily to decreases of 7.2%
and 8.3% in manufactured and fresh pork average selling prices, respectively.
Offsetting the lower average selling prices were increases of 7.5% and .6% in
manufactured and fresh pork tonnage shipped, respectively. The decrease in
selling prices was the result of a decrease in raw material costs combined with
increased competitive pressure on the Company's manufactured products pricing
structure. The increases in the manufactured products unit volume was the
result of the continued emphasis on expanding the distribution of these
products.
Cost of goods sold (including delivery costs) decreased $24.7 million
or 3.6%. The decrease was primarily the result of the decrease of
approximately 17.5% in the average cost of live hogs purchased which was
partially offset by additional costs associated with the increase in unit
volume. As a percentage of net sales, cost of goods sold remained at 89.9% for
fiscal 1995, as in fiscal 1994.
Selling expenses increased in fiscal 1995 by $1.2 million or 5.1%, as
a result of increased marketing expenditures to enhance the distribution of the
Company's products to more retail stores, particularly, in the southwestern and
western regions of the United States. As a percentage of net sales, selling
expenses increased to 3.4% in fiscal 1995 from 3.1% in fiscal 1994.
10
<PAGE> 12
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
General and administrative expenses increased slightly by $.6 million
or 2.6% primarily due to inflationary cost increases. As a percentage of net
sales, general and administrative expenses increased to 3.1% from 2.9%.
Interest expense increased $.1 million or 5.0%, as a result of an
increase in the Company's average outstanding borrowings. The increase in debt
was primarily the result of increased long-term borrowings resulting from the
increase in capital expenditures.
Gross margins during the first quarter of fiscal 1996 have been
significantly below year ago levels particularly in the Company's fresh meat
segment. Additionally, the Company is incurring expenses with the integration
of Wilson (acquired during the first week of fiscal 1996) into the Company's
operations. Based on the foregoing, results for fiscal 1996 may be
significantly lower than the prior year.
RESULTS OF OPERATIONS
Fiscal 1994 as Compared to Fiscal 1993
(52 week fiscal year compared to 52 week fiscal year)
The Company's net income for fiscal 1994 increased 1.6% to $14.1
million, as compared with net income of $13.9 million in fiscal 1993. The LIFO
(last-in, first-out) method of accounting for inventories had the effect after
taxes of increasing earnings for fiscal 1994 by $538,000; the LIFO method
reduced earnings for fiscal 1993 by $810,000.
The Company's results during 1994 were favorably impacted from
increased margins and unit volume in its manufactured products operations.
Negatively impacting the Company's results was lower profitability in the
Company's fresh pork operations, primarily as a result of increased expenses
incurred as a result of the ongoing construction at the Company's main
slaughtering facility in Detroit. The construction caused intermittent plant
shut downs, and required additional labor hours so that production, quality and
service could be maintained.
Net sales in fiscal 1994 increased $42.2 million or 5.8%, as compared
with fiscal 1993 levels. The increase was due primarily to increases of 4.1%
and 1.0% in manufactured and fresh pork tonnage shipped, respectively.
Additionally, the Company experienced increases in its average selling prices
of 3.5% and 2.7% in its manufactured and fresh pork operations, respectively.
The increases in the manufactured products unit volume and overall selling
prices were the result of the continued emphasis on expanding the distribution
of the Company's higher-margin products.
Cost of goods sold (including delivery costs) increased $38.6 million
or 5.9%. The increase was primarily the result of additional costs associated
with the increase in unit volume sold and of an increase in the average cost of
live hogs purchased of approximately 3.7%. As a percentage of net sales, costs
of goods sold remained at 89.8% for fiscal 1994, as in fiscal 1993.
Selling expenses increased in fiscal 1994 by $2.2 million or 9.8%, as
a result of increased marketing expenditures and sales personnel added to
accelerate the distribution of the Company's products to more retail stores.
Particularly, the Company expanded its effort to market products in the
southwestern
11
<PAGE> 13
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
and western regions of the United States. As a percentage of net sales,
selling expenses increased to 3.1% in fiscal 1994 from 3.0% in fiscal 1993.
General and administrative expenses decreased $500,000 or 2.2% as the
Company continued to be aggressive in cost containment. As a percentage of net
sales, general and administrative expenses decreased to 2.9% from 3.1%.
Interest expense increased $300,000 or 16.7%, as a result of an
increase in the Company's average outstanding borrowings. The increase in debt
was primarily the result of the Company's expansion and renovation of its
Frederick and Grand Rapids facilities.
FINANCIAL CONDITION
The Company's business is characterized by high unit sales volume and
rapid turnover of inventories and accounts receivable. Because of the rapid
turnover rate, the Company considers its inventories and accounts receivable to
be highly liquid and readily convertible into cash. Borrowings under lines of
credit are used to finance increases in the levels of inventories and accounts
receivable resulting from seasonal and market-related fluctuations in raw
material costs. The demand for seasonal borrowings usually peaks in early
December when ham inventories are at their highest levels. These borrowings
are generally repaid in January when the accounts receivable generated by the
sales of these hams are collected.
The Company has historically maintained lines of credit in excess of
the cash needs of its business. At May 26, 1995, the Company had available
lines of credit from three financial institutions in the aggregate principal
amount of $27.0 million, of which $6.0 million was drawn. These lines of
credit bear interest at variable rates, the average of which was approximately
5.9% during fiscal 1995. During fiscal 1995, borrowings under these lines of
credit reached a high of approximately $14.8 million. At the end of fiscal
1994 and fiscal 1993, the Company had available lines of credit from four
financial institutions in the aggregate principal amounts of $39.5 million and
$30.0 million, respectively, of which none was drawn.
Cash provided from operations in fiscal 1995 was $21.7 million
compared with $22.2 million in fiscal 1994. In addition, the Company generated
$8.0 million from the issuance of long-term notes. Cash provided from
operations and from financing activities along with cash available at the
beginning of the year was used principally to fund capital investments of $43.4
million, to pay down net long-term debt of $2.0 million, to purchase and retire
common stock of $3.4 million and to pay dividends of $1.6 million.
The Company is required, pursuant to the terms of credit agreements
with various lenders, to maintain certain levels of consolidated tangible net
worth and working capital ratios.
On May 30, 1995, as previously discussed, the Company completed the
Wilson acquisition for approximately $65.8 million. Simultaneous with the
Wilson acquisition, the Company increased its long term debt by $42.5 million,
and entered into a $80 million revolving credit agreement with four banks to
fund the acquisition. Management believes that funds provided from operations
and borrowings under the $80 million revolving credit agreement will provide
sufficient resources to allow the Company to
12
<PAGE> 14
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
complete its capital projects, to finance its current operations, to meet its
debt service requirements and to further develop its business in accordance
with its operating strategies.
In addition to the approximately $22 million of capital expenditures
related to the Wilson acquisition, the Company anticipates capital expenditures
during fiscal 1996 of approximately $40 million, primarily to complete the
construction of its new manufacturing facility in Ponca City, Oklahoma and to
complete the planned modernization of its various manufacturing and slaughter
facilities.
The cost of fixed assets increased significantly by $37.6 million
during fiscal 1995. The primary factors attributable to this net increase were
the capitalization of approximately $16.6 million related to the completion of
the Company's slaughter facility expansion and renovation project,
approximately $21.4 million of construction in progress costs related to the
construction of a new manufacturing facility in Ponca City, Oklahoma and
approximately $5 million of machinery and equipment purchases related to the
Company's Deli & Smoked Meats division. Offsetting the above increases were
retirements of approximately $3.1 million and the write off of approximately
$5.6 million of fixed assets related to the closing of the Company's Tri-Miller
facility in Hyrum, Utah.
The Company's Board of Directors has authorized the expenditure of up
to $10 million to repurchase outstanding shares of the Company's Common Stock;
as of May 26, 1995, approximately $6.2 million had been used for such
purchases. The timing and volume of any remaining purchases under this program
will depend upon market conditions, and there can be no assurance that any
particular volume of purchases will be achieved.
OTHER
The Company believes that the impact of inflation and changing prices
would not significantly affect the Company's net income reported on a
historical cost basis. This belief is based on the following:
1. Substantially all of the Company's inventories are stated on a
LIFO basis.
2. Any increase in depreciation expense as a result of increased
cost to replace property, plant and equipment is generally
offset by productivity gains and cost savings due to improved
efficiency resulting from technological improvements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Pages immediately following signature page)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE> 15
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Partially incorporated by reference pursuant to Rule 12b-23 from the
Company's 1995 Proxy Statement furnished in connection with the Company's
Annual Meeting of Shareholders to be held on October 26, 1995. See also end of
this Part III.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference pursuant to Rule 12b-23 from the Company's
1995 Proxy Statement furnished in connection with the Company's Annual Meeting
of Shareholders to be held on October 26, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference pursuant to Rule 12b-23 from the Company's
1995 Proxy Statement furnished in connection with the Company's Annual Meeting
of Shareholders to be held on October 26, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated by reference pursuant to Rule 12b-23 from the Company's
1995 Proxy Statement furnished in connection with the Company's Annual Meeting
of Shareholders to be held on October 26, 1995.
EXECUTIVE OFFICERS OF REGISTRANT
<TABLE>
<CAPTION>
Year First
Became
Name Age Officer Position
---- --- ------- --------
<S> <C> <C> <C>
Henry S Dorfman 73 1959 Chairman of the Board
Joel Dorfman 44 1978 President and Chief Executive Officer
Louis Glazier 46 1980 Executive Vice President Finance and Administration
Keith Jahnke 41 1987 Executive Vice President Sales and Marketing
Edward Boan 45 1987 Executive Vice President Pork and Human Resources
</TABLE>
14
<PAGE> 16
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
The following is a brief account of the business experience of each of
the above-named persons during the past five years:
Henry S Dorfman, a founder of the Company, has served as Chairman of
the Board since 1959. Mr. Dorfman also served as Chief Executive Officer of
the Company from 1959 to 1994.
Joel Dorfman has served as President of the Company since 1985 and
Chief Executive Officer of the Company since 1995. Mr. Dorfman has also been a
director of the Company since 1978. Mr. Dorfman also served as Chief Operating
Officer of the Company from 1985 to 1994. Joel Dorfman is the son of Henry S
Dorfman.
Louis Glazier has been Executive Vice President Finance and
Administration of the Company since 1988. Mr. Glazier has also been a director
of the Company since 1988.
Keith Jahnke has been Executive Vice President Sales and Marketing for
the Company since 1987.
Edward Boan became Vice President of Human Resources in 1985. In
1987, he also became General Manager and Vice President Fresh Pork. In 1991,
Mr. Boan became Executive Vice President Pork and Human Resources.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
14(a)(1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at May 26, 1995 and May 27, 1994
Consolidated Statements of Income for the years ended
May 26, 1995, May 27, 1994 and May 28, 1993
Consolidated Statements of Shareholders' Equity for the years
ended May 26, 1995, May 27, 1994 and May 28, 1993
Consolidated Statements of Cash Flows for the years ended
May 26, 1995, May 27, 1994, and May 28, 1993
Notes to Consolidated Financial Statements
Financial statements of subsidiaries of the Company
have been omitted because the Company is an operating company
and all material subsidiaries are wholly-owned and are not
indebted to any person other than the parent or the
consolidated subsidiaries in an amount which is material to
the total consolidated assets except indebtedness incurred in
the ordinary course of business which is not overdue and which
matures within one year from the date of its creation.
15
<PAGE> 17
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
14(a)(2) Financial Statement Schedules
Report of Independent Accountants on Financial Statement
Schedules (included in report of independent accountants on
financial statements) of Coopers & Lybrand L.L.P.
II - Valuation and qualifying accounts and reserves for
the years ended May 26, 1995, May 27, 1994 and
May 28, 1993
Schedules other than those referred to are omitted
for the reason that they are not required or are not
applicable.
14(a)(3) Exhibits
(3)(a) Restated Articles of Incorporation
Exhibit (3)(a) is incorporated herein by reference
to Exhibit 3.1 to the Company's Form S-2
Registration Statement, Registration No. 33-43287.
(b) Amendment to Restated Articles of Incorporation
Exhibit (3)(b) is incorporated herein by reference
to Exhibit (3)(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 28, 1993.
(c) By-laws, as amended to date
Exhibit (3)(c) is incorporated herein by reference
to Exhibit (3)(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 29, 1981.
(10) Material Contracts
(a) Bond Purchase Agreement, dated as of July 1, 1984,
among The Onslow County Industrial Facilities and
Pollution Control Financing Authority, Branch
Banking and Trust Company and the Company.
Exhibit (10)(a) is incorporated herein by
reference to Exhibit (10)(f) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(b) Loan Agreement, dated as of July 1, 1984, between
The Onslow County Industrial Facilities and
Pollution Control Financing Authority and the
Company.
Exhibit (10)(b) is incorporated herein by
reference to Exhibit (10)(g) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
16
<PAGE> 18
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
(c) Promissory Note in the principal amount of
$6,000,000, dated July 1,1984, from the Company
payable to The Onslow County Industrial Facilities
and Pollution Control Financing Authority.
Exhibit (10)(c) is incorporated herein by
reference to Exhibit (10)(h) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(d) Security Agreement, dated as of July 1, 1984,
between Branch Banking and Trust Company and
the Company.
Exhibit (10)(d) is incorporated herein by
reference to Exhibit (10)(i) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(e) Guaranty Agreement, dated as of July 1, 1984, from
the Company to Branch Banking and Trust Company.
Exhibit (10)(e) is incorporated herein by
reference to Exhibit (10)(j) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(f) Interest Rate Exchange Agreement, dated as of April
12, 1985, between Chemical Bank and the Company.
Exhibit (10)(f) is incorporated herein by
reference to Exhibit (10)(k) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(g) Interest Rate Exchange Agreement, dated as of
November 8, 1985, between Chemical Bank and
the Company.
Exhibit (10)(g) is incorporated herein by
reference to Exhibit (10)(l) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(h) Promissory Note in the principal amount of
$2,000,000, dated July 1, 1986, from Tri-Miller
Packing Co. payable to Hyrum City, Cache County,
Utah.
Exhibit (10)(h) is incorporated herein by
reference to Exhibit (10)(m) to the Company's
Annual Report on Form 10-K for the fiscal
year ended May 31, 1991, as amended by its
Form 8 dated October 10, 1991.
(i) Continuing Guarantee, dated as of July 1, 1988,
from the Company to Zions First National Bank.
Exhibit (10)(i) is incorporated herein
by reference to Exhibit (10)(n) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991, as amended by
its Form 8 dated October 10, 1991.
17
<PAGE> 19
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
(j) Loan Agreement, dated as of July 1, 1986, between
Hyrum City, Cache County, Utah and Tri-Miller
Packing Co.
Exhibit (10)(j) is incorporated herein by
reference to Exhibit 10.32 to the Company's
Form S-2 Registration Statement, Registration
No. 33-43287.
(k) Note Agreement dated as of April 1, 1994 by and
between the Company and Allstate Life Insurance
Company relating to $15,000,000 principal amount
6.45% Senior Notes due April 21, 2006.
Exhibit (10)(k) is incorporated herein by
reference to Exhibit (10)(ee) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 27, 1994.
(l) Loan Agreement dated as of December 1, 1993 by and
between Michigan Strategic Fund and the Company
relating to $5,500,000 Adjustable Rate Demand
Limited Obligation Revenue Bonds.
Exhibit (10)(l) is incorporated herein by
reference to Exhibit (10)(ff) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 27, 1994.
(m) Reimbursement Agreement dated as of December 1,
1993 by and between the Company and Old Kent Bank
and Trust Company relating to $5,500,000 Adjustable
Rate Demand Limited Obligation Revenue Bonds.
Exhibit (10)(m) is incorporated herein by
reference to Exhibit (10)(gg) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 27, 1994.
(n) Asset Purchase Agreement, dated as of April 29,
1995, by and among the Company and Doskocil
Companies Incorporated and Wilson Foods
Corporation, Concordia Foods Corporation, Dixie
Foods Company and Shreveport Foods Company.
Exhibit (10)(n) is incorporated herein by
reference to Exhibit 2.1 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30,1995.
(o) First Amendment to Asset Purchase Agreement, dated
as of May 26, 1995, by and among the Company,
Foodbrands America, Inc., successor by merger to
Doskocil Companies Incorporated, Wilson Foods
Corporation, Concordia Foods Corporation, Dixie
Foods Company and Shreveport Foods Company.
Exhibit (10)(o) is incorporated herein by
reference to Exhibit 2.2 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30,1995.
(p) Noncompete Agreement, dated May 30, 1995, by
Foodbrands America, Inc., Wilson Foods Corporation,
Concordia Foods Corporation, Dixie Foods Company
and Shreveport Foods Company in favor of the
Company.
18
<PAGE> 20
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
Exhibit (10)(p) is incorporated herein by
reference to Exhibit 10.1 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(q) Supply Agreement, dated May 30, 1995, by and among
Wilson Foods Corporation and Foodbrands America,
Inc., Dixie Foods Company and the Company.
Exhibit (10)(q) is incorporated herein by
reference to Exhibit 10.2 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(r) Transition Service Agreement, dated May 30, 1995,
by and between Foodbrands America, Inc. and
the Company.
Exhibit (10)(r) is incorporated herein by
reference to Exhibit 10.3 to the Company's
Report on Form 8-K dated May 30, 1995, as
amended by its Form 8-K/A dated May 30, 1995.
(s) Credit Agreement, dated as of May 30, 1995, among
Cooperatieve Centrale Raiffeisen-Boerenleen Bank,
B.A., Old Kent Bank & Trust Co., National City
Bank, Harris Trust and Savings Bank and the
Company.
(t) Note Agreement, dated as of October 1, 1994, by and
between the Company and Allstate Life Insurance
Company relating to $8,000,000 principal amount
8.42% Senior Notes due October 1, 2003.
(u) Note Agreement, dated as of May 15, 1995, among the
Company, Allstate Life Insurance Company, Principal
Mutual Life Insurance Company and Great-West Life &
Annuity Insurance Company.
(v) Marketing and Management Agreement dated November
2, 1994 by and among Michigan Livestock Exchange,
Indiana Livestock Exchange and the Company.
(21) Subsidiaries of the registrant
(23) Consent of Coopers & Lybrand L.L.P.
(27) Financial Data Schedule
14(b) The Company did not file any reports on Form 8-K during
the last quarter of the fiscal year covered by this Report.
14(d)(5) Schedules
(Pages following signature page)
19
<PAGE> 21
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on September 5, 1995.
THORN APPLE VALLEY, INC.
(Registrant)
By: /s/ LOUIS GLAZIER
----------------------------------
Louis Glazier
Executive Vice President
Finance and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on September 5, 1995.
<TABLE>
<CAPTION>
Signature Capacity
- --------- --------
<S> <C>
Director
- -----------------------------------------------
John C. Canepa
/s/ HENRY S DORFMAN Director
- -----------------------------------------------
Henry S Dorfman
/s/ JOEL DORFMAN President and Director
- ----------------------------------------------- (principal executive officer)
Joel Dorfman
/s/ BURTON D. FARBMAN Director
- -----------------------------------------------
Burton D. Farbman
/s/ LOUIS GLAZIER Executive Vice President Finance
- ----------------------------------------------- and Administration and Director (principal
Louis Glazier financial and accounting officer)
</TABLE>
20
<PAGE> 22
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 26, 1995
<TABLE>
<S> <C>
/s/ MONIEK MILBERGER Director
- -----------------------------------------------
Moniek Milberger
Director
- -----------------------------------------------
Seymour Roberts
</TABLE>
21
<PAGE> 23
Report of Independent Accountants
To the Board of Directors and Shareholders
Thorn Apple Valley, Inc.
Southfield, Michigan
We have audited the consolidated financial statements and the financial
statement schedule of Thorn Apple Valley, Inc. and Subsidiaries listed in item
14(a) of this Form 10-K. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule 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 finacial 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 finacial
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 consolidated financial position of Thorn Apple
Valley, Inc. and Subsidiaries as of May 26, 1995 and May 27, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 26, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the finacial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Detroit, Michigan
July 21, 1995
F-1
<PAGE> 24
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 26, May 27,
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,730,637 $ 17,441,675
Short-term investments 531,064 531,064
Accounts receivable, less
allowance for doubtful accounts
(1995, $789,100; 1994, $731,800) 40,083,861 44,190,499
Inventories (Note 2) 44,800,792 43,780,184
Refundable income taxes 1,366,231
Deferred income taxes (Note 7) 2,499,000 1,448,000
Prepaid expenses and other current assets 4,073,817 3,269,690
------------ ------------
Total current assets 98,085,402 110,661,112
------------ ------------
Property, plant and equipment (Note 6):
Land 1,139,439 1,198,882
Buildings and improvements 37,694,988 26,617,133
Machinery and equipment 117,712,476 100,476,202
Transportation equipment 7,529,516 7,238,986
Property under capital leases 7,428,634 3,787,218
Construction in progress 22,206,233 16,775,833
------------ ------------
193,711,286 156,094,254
Less accumulated depreciation 95,643,621 87,834,957
------------ ------------
98,067,665 68,259,297
------------ ------------
Other assets 8,143,298 6,521,676
------------ ------------
$204,296,365 $185,442,085
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $32,474,150 $33,970,384
Notes payable, banks (Note 3) 5,960,000
Notes payable, officer (Note 4) 1,415,241 1,998,029
Accrued liabilities (Note 5) 23,378,430 20,634,804
Current portion of long-term debt (Note 6) 3,100,310 1,701,091
Income taxes 526,722
------------ ------------
Total current liabilities 66,328,131 58,831,030
------------ ------------
Long-term debt (Note 6) 35,464,669 27,936,985
------------ ------------
Deferred income taxes (Note 7) 3,908,000 2,504,000
------------ ------------
Shareholders' equity:
Preferred stock: $1 par value; authorized 200,000 shares; issued none
Common nonvoting stock: $.10 par value; authorized 20,000,000 shares;
issued none
Common voting stock: $.10 par value; authorized 20,000,000 shares; issued
5,770,647 shares in 1995 and 5,803,073 shares in 1994 577,065 580,307
Capital in excess of par value 6,771,071 4,778,498
Retained earnings 91,247,429 90,811,265
------------ ------------
98,595,565 96,170,070
------------ ------------
$204,296,365 $185,442,085
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 25
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------
May 26, May 27, May 28,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $744,542,466 $772,098,333 $729,909,723
------------ ------------ ------------
Operating costs and expenses:
Cost of goods sold, including
delivery costs 669,068,064 693,784,481 655,146,521
Selling 25,377,029 24,155,852 21,995,674
General and administrative 22,911,735 22,339,197 22,851,047
Depreciation 9,830,100 8,262,515 7,379,378
Restructuring charge (Note 11) 7,857,319
------------ ------------ ------------
735,044,247 748,542,045 707,372,620
Income from operations 9,498,219 23,556,288 22,537,103
------------ ------------ ------------
Other expense (income):
Interest 2,258,674 2,151,359 1,843,750
Other, net (960,341) (895,444) (879,214)
------------ ------------ ------------
1,298,333 1,255,915 964,536
------------ ------------ ------------
Income before income taxes 8,199,886 22,300,373 21,572,567
Provision for income taxes (Note 7) 2,945,000 8,217,000 7,710,000
------------ ------------ ------------
Net income $5,254,886 $14,083,373 $13,862,567
============ ============ ============
Earnings per share of common stock $0.91 $2.40 $2.36
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 26
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in
----------------------- Excess of Retained
Shares Amount Par Value Earnings
--------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, May 29, 1992 5,833,106 $583,311 $6,673,678 $65,628,966
Net income 13,862,567
Cash dividends, $.20 per share (1,179,638)
Payment in lieu of fractional shares (3,861)
Exercise of stock options including
related tax benefits (Note 8) 87,000 8,700 735,433
--------- ------- --------- ----------
Balance, May 28, 1993 5,920,106 592,011 7,405,250 78,311,895
Net income 14,083,373
Cash dividends, $.27 per share (1,584,003)
Exercise of stock options including
related tax benefits (Note 8) 9,500 950 133,039
Purchase and retirement of common stock (126,533) (12,654) (2,759,791)
--------- ------- --------- ----------
Balance, May 27, 1994 5,803,073 580,307 4,778,498 90,811,265
Net income 5,254,886
Cash dividends, $.28 per share (1,610,575)
Exercise of stock options including related tax
benefits and other stock plans (Note 8) 104,645 10,465 2,161,423
Purchase and retirement of common stock (137,071) (13,707) (168,850) (3,208,147)
--------- -------- ---------- -----------
Balance, May 26, 1995 5,770,647 $577,065 $6,771,071 $91,247,429
========= ======== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 27
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------
May 26, May 27, May 28,
1995 1994 1993
-------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $5,254,886 $14,083,373 $13,862,567
---------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,830,100 8,262,515 7,379,378
Restructuring charge 6,915,646
Deferred income taxes 353,000 656,000 (780,000)
(Gain) loss on disposition of property,
plant and equipment (15,451) (813) 26,601
Provision for losses on accounts receivable 57,300 (100,500) 61,800
(Increase) decrease in assets:
Accounts receivable 4,049,338 (6,800,467) (1,814,851)
Inventories (1,020,608) (5,610,119) 1,866,585
Refundable income taxes (1,366,231) 528,574 (528,574)
Prepaid expenses and other assets (2,425,749) (82,919) (264,580)
Increase (decrease) in liabilities:
Accounts payable (1,496,234) 7,289,671 1,784,084
Accrued liabilities 2,094,826 3,452,205 862,163
Income taxes (526,722) 526,722 (392,575)
---------- ----------- -----------
Total adjustments 16,449,215 8,120,869 8,200,031
---------- ----------- -----------
Net cash provided by operating activities 21,704,101 22,204,242 22,062,598
---------- ----------- -----------
Cash flows from investing activities:
Purchase of short-term investments (300,000)
Proceeds from redemption of short-term investments 20,000 1,296,000
Purchase of long-term investments (2,160,000)
Proceeds from sale of property, plant and equipment 412,926 2,311,269 461,305
Capital expenditures (43,367,769) (30,197,956) (19,197,032)
---------- ----------- -----------
Net cash used in investing activities (42,954,843) (28,166,687) (19,599,727)
---------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt 8,000,000 20,500,000
Proceeds from stock options exercised including related
tax benefits 2,171,888 133,989 744,133
Principal payments on long-term debt (2,008,117) (1,940,256) (8,161,804)
Purchase and retirement of common stock (3,390,704) (2,772,445)
Net borrowings under lines of credit 5,960,000
Net borrowings from (payments to) officers (582,788) 387,406 885,800
Dividends paid (1,610,575) (1,584,003) (1,179,638)
Payment in lieu of fractional shares (3,861)
---------- ----------- -----------
Net cash provided by (used in) financing activities 8,539,704 14,724,691 (7,715,370)
---------- ----------- -----------
Net increase (decrease) in cash (12,711,038) 8,762,246 (5,252,499)
Cash and cash equivalents, beginning of year 17,441,675 8,679,429 13,931,928
---------- ----------- -----------
Cash and cash equivalents, end of year $4,730,637 $17,441,675 $8,679,429
========== =========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $4,003,000 $2,336,000 $2,421,000
========== =========== ==========
Income taxes $3,991,000 $6,207,000 $8,891,000
========== =========== ==========
Noncash investing activities:
Capital lease obligations $2,935,020 $895,578
========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 28
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
1. Summary of significant accounting policies:
Nature of operations:
The Company is engaged in the manufacture and sale of bacon, hot dogs
and lunch meats, hams, smoked sausage and turkey products, as well
as the slaughtering of hogs and the sale of related fresh meat
products.
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Cash and cash equivalents:
Cash and cash equivalents include cash on hand, demand deposits and
short-term investments with a maturity of three months or less at
the date of acquisition.
Short-term investments:
Short-term investments are those with a maturity in excess of three
months at the date of acquisition and are valued at cost, which
approximates market.
Inventories:
Substantially all inventories are stated at the lower of last-in,
first-out (LIFO) cost or market.
Property, plant and equipment:
Property, plant and equipment are stated at cost. Upon retirement or
disposal of property, plant and equipment, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is
included in other income. Depreciation is computed for financial
reporting purposes generally on the straight-line basis over the
estimated useful lives of the assets. The cost of repairs and
maintenance is charged against results of operations as incurred.
The Company capitalized interest incurred on debt during the course
of major projects which approximated $1,048,000 during 1995.
Interest rate exchange agreements, options and forward contracts:
The Company has entered into interest rate exchange agreements and a
variety of commodity option and forward contracts. Realized and
unrealized gains and losses are recognized currently in income and
expenses.
F-6
<PAGE> 29
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
1. Summary of significant accounting policies (continued):
Earnings per share of common stock:
Earnings per share of common stock are based on the weighted average
number of common shares outstanding during each year. The weighted
average number of shares for 1995, 1994 and 1993 were 5,754,726,
5,877,789 and 5,884,081, respectively.
The potential dilution from shares issuable under employee stock
option plans is excluded from the computation of the weighted
average number of common shares outstanding since it is not material.
Fiscal year:
The Company's fiscal year is reported on a 52/53-week period which
ends on the last Friday in May.
2. Inventories:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
At lower of cost or market:
Supplies $ 6,824,152 $ 6,029,038
Raw materials 11,389,564 18,333,399
Work in process 4,914,163 2,933,039
Finished goods 24,622,913 21,406,708
----------- -----------
47,750,792 48,702,184
Less LIFO reserve 2,950,000 4,922,000
----------- -----------
$44,800,792 $43,780,184
=========== ===========
</TABLE>
The LIFO method of accounting for inventories had the effect (after
income taxes) of increasing net income by approximately $1,282,000
($.22 per share) and $538,000 ($.09 per share) for the years ended
May 26, 1995 and May 27, 1994, respectively, and decreasing net income by
approximately $810,000 ($.14 per share) for the year ended May 28, 1993.
3. Lines of credit and short-term borrowings:
At May 26, 1995, the Company had unsecured lines of credit with three
banks whereby it could borrow in the aggregate up to $27,000,000 with
interest ranging from below the prime rate to the prime rate charged by
major banks. At May 26, 1995, the Company had unused lines of credit of
$21,040,000. The weighted average interest rate under the lines of credit
was approximately 5.9% and 5.2% during fiscal 1995 and 1994,
respectively. The calculation of the weighted average interest rate has
been determined by dividing the actual interest charges by the average
amount outstanding. On May 30, 1995, the Company obtained an $80
million revolving credit agreement that will replace the lines of credit
which existed at May 26, 1995. (See Note 12).
The Company has entered into interest rate exchange agreements, whereby
it has exchanged its variable rate position on a notional amount of
$15,000,000 for a fixed rate of 11.7%. The differential paid or
received on these agreements is recognized as an adjustment to interest
expense. The notional amount is not subject to risk of loss. The
agreements expire in fiscal 1996.
F-7
<PAGE> 30
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
4. Notes payable, officer, and other related party transactions:
The notes payable, officer, are due on demand, with interest payable
monthly at approximately 1% below the prime rate. Interest expense on
the notes payable, officer, amounted to approximately $226,400, $150,600
and $104,700 for the years ended 1995, 1994 and 1993, respectively.
Accounts receivable includes a non interest bearing note receivable from a
trust that has purchased life insurance policies for certain officers and
other employees. The balance of the note was $1,700,000 and $900,000 at
May 26, 1995 and May 27, 1994, respectively.
The Company leased its sales division office building from entities
controlled by certain officers/shareholders of the Company. During 1995,
1994 and 1993, the Company paid rent of approximately $174,600 for the
use of this location.
The Company maintains inventory at a freezer warehouse that is 75% owned
by an officer and director of the Company. Storage and handling expenses
paid to this freezer warehouse amounted to approximately $2,311,000,
$1,071,000 and $1,275,000 for the years ended 1995, 1994 and 1993,
respectively. Additionally, the Company rents a portion of the freezer
warehouse for use as a distribution center. Currently, the Company is
operating under a one year lease option that expires in January 1996.
Freezer warehouse rent expense amounted to $882,000 for each of the years
ended 1995, 1994, and 1993, respectively.
5. Accrued liabilities:
Included within accrued liabilities are compensation and employee benefits
of $4,669,454 and $3,842,068 at May 26, 1995, and $4,903,496 and
$3,708,077 at May 27, 1994, respectively.
6. Long-term debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1995 1994
------ ------
<S> <C> <C>
A. Notes $23,000,000 $15,000,000
B. Industrial revenue bonds 9,785,733 10,425,000
C. Promissory note 1,682,942 1,994,025
D. Obligations under capital leases 4,096,304 2,214,251
E. Other long-term debt with
varying terms and maturities 4,800
----------- -----------
38,564,979 29,638,076
Less current portion 3,100,310 1,701,091
----------- -----------
$35,464,669 $27,936,985
=========== ===========
</TABLE>
A. At May 26, 1995 the outstanding balance consisted of two separate issues
of unsecured notes in private placements to an institutional investor.
The first outstanding issue is at $15,000,000 bearing interest at a fixed
rate of 6.45% per annum. The principal on the notes is due in equal annual
installments of $1,666,666 beginning April 1, 1998, and ending April 1,
2005, with the remaining principal payable at maturity on April 26, 2006.
The second outstanding issue, completed during fiscal 1995, is at
$8,000,000 bearing interest at a fixed rate of 8.42% per annum, having a
maturity of nine years. Interest is payable semi-annually on the first
day of April and October of each year, beginning April 1, 1995. The
principal on the notes is due at maturity on October 1, 2003.
The Company is required, pursuant to the terms and covenants of the
unsecured notes agreements, to maintain a minimum level of consolidated
tangible net worth.
F-8
<PAGE> 31
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
6. Long-term debt (continued):
B. At May 26, 1995, the outstanding principal balance of the industrial
revenue bonds consisted of three separate bond issues. The first
outstanding issue is at $3,112,500 with varying quarterly principal
payments due July 1, 1995 through January 1, 2000, and quarterly
interest at 81.1042% of the current prime rate (Prime at May 26, 1995
was 9%). The second outstanding issue is at $1,173,233 with varying
monthly payments through January 1, 2002, which include interest at 85%
of the current prime rate. The entire outstanding balance of the second
bond issue has been reclassified as a current liability as the Company
anticipates repaying it during fiscal 1996 upon the subsequent sale of a
portion of the Tri-Miller facility resulting from the plant closure as
previously announced. (See Note 12). The third outstanding issue,
entered into during fiscal 1994, is at $5,500,000 with monthly interest
payments at a variable rate and the principal due on December 1, 2005.
The variable rate of interest paid on the third issue during the month of
May 1995, averaged 4.99%.
The first and second bond issues are collateralized by property, plant and
equipment, while the third bond issue is collateralized by a $5,600,000
letter of credit.
The Company is required, pursuant to the terms of an industrial revenue
bond and limited obligation revenue bond agreement, to maintain a
minimum level of consolidated tangible net worth.
C. During fiscal 1993, the Company financed an investment of $2,115,000 in a
limited partnership in properties qualifying for low income housing tax
credits. Annual varying principal payments are due April 1, 1996,
through April 1, 1998. The effective interest rate is 8.47%.
D. The obligations under capital leases are at fixed interest rates ranging
from 5.5% to 10.55% and are collateralized by property, plant and
equipment.
<TABLE>
<CAPTION>
Property under capital leases consists of the following:
1995 1994
---------- ----------
<S> <C> <C>
Machinery and equipment $7,428,634 $3,787,218
Less accumulated amortization 2,752,543 2,096,025
---------- ----------
$4,676,091 $1,691,193
========== ==========
</TABLE>
Future minimum rentals for property under capital leases are as follows:
<TABLE>
<CAPTION>
Year Ending Amount
----------- --------------
<S> <C>
1996 $1,342,374
1997 1,147,106
1998 1,053,257
1999 599,410
2000 564,196
Thereafter 131,130
----------
Total minimum lease obligation 4,837,473
Less interest 741,169
----------
Present value of total minimum lease obligation $4,096,304
==========
</TABLE>
Additionally, on May 30, 1995, the Company issued $42,500,000 of long-
term unsecured notes in a private placement in conjunction with the
acquisition of certain assets of the retail division of Foodbrands
America, Inc. (See Note 12).
The aggregate maturities of long-term debt (excluding obligations under
capital leases) during the five years subsequent to May 26, 1995 are:
1996, $2,073,169; 1997, $948,520; 1998, $3,338,652; 1999, $2,379,166;
2000, $2,229,166.
The fair value of the Company's long-term debt approximates the carrying
amount based on the current rates offered to the Company on similar debt.
F-9
<PAGE> 32
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
7. Income taxes:
The Company's provision for income taxes was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal $2,259,000 $6,874,000 $6,636,000
State and local 333,000 638,000 675,000
---------- ---------- ----------
Total currently payable 2,592,000 7,512,000 7,311,000
Deferred:
Federal and state 353,000 705,000 399,000
---------- ---------- ----------
Total provision $2,945,000 $8,217,000 $7,710,000
========== ========== ==========
</TABLE>
Deferred income taxes, on a SFAS No. 109 basis, reflect the estimated
future tax effect of temporary differences between the amounts of assets
and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The components of deferred income tax
assets and liabilities as of May 26, 1995 and May 27, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Depreciation $3,449,100 $2,154,665
Employee benefit plans $1,440,776 $1,390,529
Bad debt expense 297,373 275,885
Royalty income 95,552 132,583
Capital leases 183,794 142,505
Restructuring charge 916,901
All other 33,062 368,666 85,775 378,436
---------- ---------- ---------- ----------
Total deferred taxes $2,688,112 $4,097,112 $1,752,189 $2,808,189
========== ========== ========== ==========
</TABLE>
A reconciliation of the provision for income taxes is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ---------------- -----------------
Amount % Amount % Amount %
---------- ----- ---------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
at statutory rate $2,870,000 35 $7,805,000 35 $7,335,000 34
State and local income
taxes, net of federal
income tax benefit 232,000 3 445,000 2 446,000 2
Lower tax rate attributable
to foreign sales corporation (138,000) (2) (202,000) (1) (95,000)
Other (19,000) 169,000 1 24,000
---------- --- ---------- --- ---------- ----
$2,945,000 36 $8,217,000 37 $7,710,000 36
========== === ========== === ========== ====
</TABLE>
F-10
<PAGE> 33
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
8. Stock option plans:
The Company's 1990 Employee Stock Option Plan authorizes the Company's
Stock Option Committee to grant options for up to 787,500 shares of the
Company's common stock to present or prospective employees. At May 26,
1995, 339,050 options were granted but not exercised under the 1990 Plan.
At May 26, 1995, there were 145,500 options granted but not exercised
under the 1982 Employee Stock Option Plan. The Company's Stock Option
Committee may designate any requirements regarding option price, waiting
period or an exercise date for options granted under the Plans, except
that incentive stock options may not be exercised at less than the fair
market value of the stock on the date of grant, and no option may remain
outstanding for more than 10 years.
The following is a summary of options granted under the Plans:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- ------------------------ -------------------------
Option Option Option
Shares Price Shares Price Shares Price
--------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning 465,000 $ 2.56 - $23.00 315,000 $2.56 - $23.00 282,750 $2.56 - $19.67
Exercised (100,200) $ 2.56 - $26.00 (9,500) $2.56 - $17.00 (87,000) $2.56 - $ 2.78
Canceled or terminated (50,750) $17.00 - $26.00
Granted 170,500 $26.00 159,500 $17.00 119,250 $23.00
------- ------- -------
Balance, ending 484,550 $ 2.56 - $26.00 465,000 $2.56 - $23.00 315,000 $2.56 - $23.00
======= ======= =======
</TABLE>
At May 26, 1995, there were 18 participants in the 1982 Employee Stock
Option Plan and 24 participants in the 1990 Employee Stock Option Plan.
9. Pension plans:
The Company and its subsidiaries have several defined benefit pension
plans covering substantially all of their nonsalaried employees. Benefits
under these plans are based on the employee's years of service, and the
benefit obligations are based upon the employee's expected date of
retirement. Plan assets are invested in corporate and government bonds,
common stocks and a bank money market fund. The Company's general funding
policy is to contribute amounts deductible for federal income tax purposes.
Net periodic pension cost for 1995, 1994 and 1993 includes the following
benefit and cost components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost $332,840 $320,182 $292,588
Interest cost 645,329 597,299 529,854
Actual return on plan assets (885,195) (282,059) (657,358)
Net amortization and deferral 250,402 (328,786) 74,656
-------- -------- --------
Net periodic pension cost $343,376 $306,636 $239,740
======== ======== ========
</TABLE>
As of May 26, 1995 and May 27, 1994, the funded status of the defined
benefit plans, using the actuarial present value of the benefit
obligation, is as follows:
F-11
<PAGE> 34
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
9. Pension plans (continued):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Vested benefit obligation $8,338,358 $7,670,688
Projected and accumulated
benefit obligation $8,863,460 $8,195,853
Plan assets at fair value 8,627,451 7,608,933
---------- ----------
Projected benefit obligation
greater than assets 236,009 586,920
Unrecognized net (loss) (365,170) (593,552)
Unrecognized net transition asset 232,326 260,137
Unrecognized prior service cost (51,592) (56,190)
---------- ----------
Accrued pension cost $ 51,573 $ 197,315
========== ==========
Actuarial assumptions used for
1995, 1994, and 1993 are:
Discount rate 8%
Expected rate of return on plan
assets 8%
</TABLE>
The Company also makes contributions to union-sponsored multi-employer
plans in accordance with negotiated labor contracts. Information on the
actuarial present value of accumulated plan benefits and net assets
available for benefits relating to these plans is not available.
Contributions to all such plans were approximately $207,000, $169,000,
and $183,000 in 1995, 1994 and 1993, respectively.
10. Commitments:
Operating leases:
The Company leases transportation and manufacturing equipment under several
operating leases expiring through 2001. The majority of the leases
contain purchase options at stated amounts or fair market value. The
Company also leases various office space as well as freezer storage space
at a freezer warehouse (Note 4). Rent expense under all operating leases
amounted to approximately $6,817,000, $5,338,000 and $4,487,000 for the
years ended 1995, 1994 and 1993, respectively. Total future minimum
rentals under non-cancelable operating leases as of May 26, 1995, including
those discussed in Note 4, are:
<TABLE>
<CAPTION>
Year Ending Amount
----------- -------------
<S> <C>
1996 $5,009,000
1997 4,143,000
1998 3,246,000
1999 1,993,000
2000 941,000
Thereafter 141,000
</TABLE>
Letters of credit:
At May 26, 1995, the Company had outstanding letters of credit totaling
approximately $8,300,000 which serve as collateral for an industrial
revenue bond issue, as discussed in Note 6, and various insurance
agreements.
F-12
<PAGE> 35
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
10. Commitments (continued):
Purchase and Management Agreement:
In November, 1994 the Company entered into a 10 year agreement with
Michigan Livestock Exchange (MLE). Under the terms of the agreement,
MLE has agreed to manage and operate the Company's hog buying stations
and to provide the Company with hogs in accordance with the Company's
quantity and quality specifications at MLE's hog costs plus certain
operating expenses. In consideration the Company will pay MLE $83,333
per month as a facilities use and management fee. In accordance with
the agreement the Company has purchased $2.0 million of preferred stock
of MLE that pays a 6% dividend. The Company has classified the
investment in MLE in other long-term assets on its consolidated balance
sheet.
11. Restructuring Charges:
During the fourth quarter of fiscal 1995, the Company recorded a one-time
pre-tax restructuring charge to operations of $7.9 million. In March,
the Company announced a plan to close its Tri-Miller Packing facility in
Hyrum, Utah in an effort to eliminate duplicate facilities and excess
personnel. The closing is expected to reduce ongoing manufacturing
costs, and was made possible by the recent completion of the expansion of
the Company's Grand Rapids, Michigan facility. Under the restructuring
plan, the Company has identified approximately 400 employees, both
production and management that were terminated. The shut down of this
facility was substantially completed by the end of May. The restructuring
charge includes $5.5 million related to the write-down of plant and
equipment costs that are being sold. Additionally, $1.4 million includes
other costs related to ceasing production of the Tri-Miller facility,
write-down of obsolete inventories, facility consolidation costs and
employee severance payments. The remaining $1.0 million of the
restructuring charge relates to the write-down of buildings, leasehold
improvements and equipment to estimated realizable value associated with
the relocation of the corporate staff to a new headquarters office and the
planned relocation of the Company's Cavanaugh Lakeview Farms, subsidiary
to the newly constructed production facility in Ponca City, Oklahoma.
12. Subsequent Event:
On May 30, 1995, the Company completed the acquisition of certain assets
of the retail division of Foodbrands America, Inc. formerly the Doskocil
Companies. The aggregate purchase for the assets acquired and the
assumption of certain liabilities was approximately $65.8 million. During
the next five years, Foodbrands has the right to receive from the Company
up to an additional $10 million in accordance with what is being referred
to as an Earnout Agreement. The acquisition has been accounted for by the
purchase method. The acquired assets include three manufacturing
facilities, machinery and equipment, current assets, certain trademarks
and trade names and goodwill. The goodwill acquired will be amortized to
expense over 40 years.
Concurrent with the acquisition the Company issued $42.5 million of
long-term unsecured notes in a private placement and replaced its existing
lines of credit with an $80 million revolving credit agreement. The
long-term unsecured debt is at a fixed rate of 7.58% per annum, having a
maturity of ten years, interest is payable semi-annually on May 15 and
November 15 of each year. The principal on the notes is due in equal
annual installments of $6,071,429 beginning May 15, 1999, and ending May
15, 2004, with the remaining principal payable at maturity on May 15,
2005. The Company is required, pursuant to the terms and covenants of
the unsecured notes agreement, to maintain a minimum level of consolidated
net worth.
F-13
<PAGE> 36
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
12. Subsequent Event (continued):
The unsecured revolving credit agreement is with four financial
institutions at variable interest rates no higher than the prime rate or
its equivalent. The commitments under the revolving credit agreement
expire on May 30, 1998, but may be extended annually for successive one
year periods with the consent of the financial institutions. The
commitment fee on the unused portion of the facility is .25% per annum.
The Company is required under the revolving credit agreement to maintain a
minimum level of consolidated net worth.
The following unaudited pro forma condensed combined financial
information assumes the acquisition occurred at the beginning of fiscal
1995. The results do not purport to be indicative of what would have
occurred had the acquisition been made at the beginning of fiscal 1995, or
of the results which may occur in the future.
<TABLE>
<CAPTION>
Fiscal Year Ended
May 26, 1995
(In thousands, except per share data) (Unaudited)
--------------------------------------------------------
<S> <C>
Net sales $965,780
Income from operations $11,192
Net income $2,377
Earnings per share $0.41
--------------------------------------------------------
</TABLE>
13. Summary of quarterly financial information (unaudited):
<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
--------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st (a)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1995
Net sales $158,715 $163,556 $186,152 $236,119
Gross profit 13,985 12,548 26,741 22,200
Net income (loss) (4,475) (507) 7,661 2,576
Earnings (loss) per
share of common stock (0.79)(b) (0.09) 1.34 0.45
<CAPTION>
--------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st (a)
--------------------------------------------------------------------
Fiscal 1994
Net sales $177,795 $173,317 $189,387 $231,599
Gross profit 16,610 18,129 19,942 23,633
Net income 3,559 3,020 3,602 3,902
Earnings per share
of common stock 0.61 (b) 0.52 0.61 0.66
</TABLE>
(a) The first quarter consisted of sixteen weeks while all other
quarters consisted of twelve weeks.
(b) Includes an adjustment to reflect the LIFO method of accounting for
inventories.
F-14
<PAGE> 37
SCHEDULE II
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 26, 1995, MAY 27, 1994 AND MAY 28, 1993
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
---------------------------------------------------------------------------------------------------------
Additions
---------------------------
Balance at Charged to Charged to Balance
beginning cost and other accounts- (A) at end
Classification of period expenses describe Deductions of period
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended May 26, 1995 $731,800 $293,810 $236,510 $789,100
Year ended May 27, 1994 $832,300 $321,868 $422,368 $731,800
Year ended May 28, 1993 $770,500 $153,713 $91,913 $832,300
</TABLE>
Note A. Write-off of uncollectible accounts, net of recoveries.
F-15
<PAGE> 38
Form 10-K Year Ended
May 26, 1995
THORN APPLE VALLEY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page
- ----------- ----
<S> <C> <C>
(3)(a) Restated Articles of Incorporation
(b) Amendment to Restated Articles of
Incorporation
(c) By-laws, as amended to date
(10) Material Contracts
(a) Bond Purchase Agreement, dated as of July
1, 1984, among The Onslow County Industrial
Facilities and Pollution Control Financing
Authority, Branch Banking and Trust Company
and the Company.
(b) Loan Agreement, dated as of July 1, 1984,
between The Onslow County Industrial
Facilities and Pollution Control Financing
Authority and the Company.
(c) Promissory Note in the principal amount of
$6,000,000, dated July 1, 1984, from the
Company payable to The Onslow County
Industrial Facilities and Pollution Control
Financing Authority.
(d) Security Agreement, dated as of July 1,
1984, between Branch Banking and Trust
Company and the Company.
(e) Guaranty Agreement, dated as of July
1, 1984, from the Company to Branch Banking
and Trust Company.
(f) Interest Rate Exchange Agreement, dated as
of April 12, 1985, between Chemical Bank
and the Company.
(g) Interest Rate Exchange Agreement, dated as
of November 8, 1985, between Chemical Bank
and the Company.
(h) Promissory Note in the principal amount of
$2,000,000, dated July 1, 1986, from Tri-
Miller Packing Co. payable to Hyrum City,
Cache County, Utah.
(i) Continuing Guarantee, dated as of July 1,
1988, from the Company to Zions First
National Bank.
(j) Loan Agreement, dated as of July 1, 1986,
between Hyrum City, Cache County, Utah and
Tri-Miller Packing Co.
(k) Note Agreement dated as of April 1, 1994 by
and between the Company and Allstate Life
Insurance Company relating to $15,000,000
principal amount 6.45% Senior Notes due
April 21, 2006.
(l) Loan Agreement dated as of December 1, 1993
by and between Michigan Strategic Fund and
the Company relating to $5,500,000
Adjustable Rate Demand Limited Obligation
Revenue Bonds.
</TABLE>
<PAGE> 39
Form 10-K Year Ended
May 26, 1995
THORN APPLE VALLEY, INC.
<TABLE>
<S> <C>
(m) Reimbursement Agreement dated as of
December 1, 1993 by and between the Company
and Old Kent Bank and Trust Company
relating to $5,500,000 Adjustable Rate
Demand Limited Obligation Revenue Bonds.
(n) Asset Purchase Agreement, dated as of April
29, 1995, by and among the Company and
Doskocil Companies Incorporated and Wilson
Foods Corporation, Concordia Foods
Corporation, Dixie Foods Company and
Shreveport Foods Company.
(o) First Amendment to Asset Purchase
Agreement, dated as of May 26, 1995, by and
among the Company, Foodbrands America,
Inc., successor by merger to Doskocil
Companies Incorporated, Wilson Foods
Corporation, Concordia Foods Corporation,
Dixie Foods Company and Shreveport Foods
Company.
(p) Noncompete Agreement, dated May 30, 1995,
by Foodbrands America, Inc., Wilson Foods
Corporation, Concordia Foods Corporation,
Dixie Foods Company and Shreveport Foods
Company in favor of the Company.
(q) Supply Agreement, dated May 30, 1995, by
and among Wilson Foods Corporation and
Foodbrands America, Inc., Dixie Foods
Company and the Company.
(r) Transition Service Agreement, dated May 30,
1995, by and between Foodbrands America,
Inc. and the Company.
(s) Credit Agreement, dated as of May 30, 1995,
among Cooperatieve Centrale Raiffeisen-
Boerenleen Bank, B.A., Old Kent Bank &
Trust Co., National City Bank, Harris Trust
and Savings Bank and the Company.
(t) Note Agreement, dated as of October 1,
1994, by and between the Company and
Allstate Life Insurance Company relating to
$8,000,000 principal amount 8.42% Senior
Notes due October 1, 2003.
(u) Note Agreement, dated as of May 15, 1995,
among the Company, Allstate Life Insurance
Company, Principal Mutual Life Insurance
Company and Great-West Life & Annuity
Insurance Company.
(v) Marketing and Management Agreement dated
November 2, 1994 by and among Michigan
Livestock Exchange, Indiana Livestock
Exchange and the Company.
(21) Subsidiaries of the registrant
(23) Consent of Coopers & Lybrand L.L.P.
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10(s)
U.S. $80,000,000
CREDIT AGREEMENT,
dated as of May 30, 1995
among
THORN APPLE VALLEY, INC.
as the Borrower,
and
CERTAIN COMMERCIAL LENDING INSTITUTIONS,
as the Lenders,
and
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
New York Branch
as the Agent for the Lenders
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.3. Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.4. Accounting and Financial Determinations . . . . . . . . . . . . . . . . . . . . . . . . . 17
II COMMITMENTS, BORROWING PROCEDURES AND NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1.1. Commitment of Each Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1.2. Lenders Not Permitted or Required To Make Loans . . . . . . . . . . . . . . . . . . . . . 17
2.2. Reduction of Commitment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.3. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4. Continuation and Conversion Elections . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.5. Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.6. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.7. Extension of Commitment Termination Date . . . . . . . . . . . . . . . . . . . . . . . . 19
III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1. Repayments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2. Interest Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2.1. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2.2. Post-Maturity Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2.3. Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3.1. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3.2. Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3.3. Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
IV CERTAIN EURODOLLAR RATE AND OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1. Eurodollar Rate Lending Unlawful . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2. Deposits Unavailable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3. Increased Eurodollar Rate Loan Costs, etc. . . . . . . . . . . . . . . . . . . . . . . . 24
4.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5. Increased Capital Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.7. Payments, Computations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.8. Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.9. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
V CONDITIONS TO BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.1. Initial Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.1.1. Resolutions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.1.2. Delivery of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.1.3. Acquisition Consummated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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5.1.4. Payment of Outstanding Indebtedness, etc. . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1.5. Environmental Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1.6. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1.7. Closing Fees, Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.2. All Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.2.1. Compliance with Warranties, No Default, etc. . . . . . . . . . . . . . . . . . . . . . . 29
5.2.2. Borrowing Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.1. Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.2. Due Authorization, Non-Contravention, etc. . . . . . . . . . . . . . . . . . . . . . . . 31
6.3. Government Approval, Regulation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.5. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.6. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.7. Litigation, Labor Controversies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.8. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.9. Ownership of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.11. Pension and Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.12. Environmental Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.13. Regulations G, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.14. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.15. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.16. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.17. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.18. Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
VII COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.1.1. Financial Information, Reports, Notices, etc. . . . . . . . . . . . . . . . . . . . . . . 36
7.1.2. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.1.3. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.1.5. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.1.6. Environmental Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.2.1. Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.2.2. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.2.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.2.4. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.2.5. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.2.6. Restricted Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.2.7. Consolidation, Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.2.8. Asset Dispositions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.2.9. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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TABLE OF CONTENTS
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<TABLE>
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7.2.10. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.2.11. Compliance with Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
VIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.1. Listing of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.1.2. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.1.3. Non-Performance of Certain Covenants and Obligations . . . . . . . . . . . . . . . . . . 47
8.1.4. Non-Performance of Other Covenants and Obligations . . . . . . . . . . . . . . . . . . . 47
8.1.5. Default on Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.1.6. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.1.7. Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.1.8. Control of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.1.9. Bankruptcy, Insolvency, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.2. Action if Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.3. Action if Other Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
IX THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.1. Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.2. Funding Reliance, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.3. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.4. Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.5. Loans by RBN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.6. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.7. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.3. Payment of Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.8. Execution in Counterparts, Effectiveness, etc. . . . . . . . . . . . . . . . . . . . . . 55
10.9. Governing Law; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.11. Sale and Transfer of Loans and Note; Participations in Loans and Note . . . . . . . . . . 56
10.11.1. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.11.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.12. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.13. Forum Selection and Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . 59
10.14. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
SCHEDULE I - Disclosure Schedule
EXHIBIT A - Form of Note
EXHIBIT B - Form of Borrowing Base Certificate
EXHIBIT C - Form of Borrowing Request
EXHIBIT D - Form of Continuation/Conversion Notice
EXHIBIT E - Form of Lender Assignment Agreement
EXHIBIT F - Form of Opinion of Counsel to the Borrower
</TABLE>
iv
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of May 30, 1995, among THORN APPLE
VALLEY, INC. a Michigan corporation (the "Borrower"), the various financial
institutions as are or may become parties hereto (collectively, the "Lenders"),
and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., acting through its
New York Branch ("RBN"), as agent (the "Agent") for the Lenders,
W I T N E S S E T H:
WHEREAS, the Borrower is engaged directly and through its various
Subsidiaries in the business of processing food; and
WHEREAS, the Borrower desires to obtain Commitments from the Lenders
pursuant to which Loans, in a maximum aggregate principal amount at any one
time outstanding not to exceed $80,000,000, will be made to the Borrower from
time to time prior to the Commitment Termination Dates of the Lenders; and
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such
Commitments and make such Loans to the Borrower.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Acquisition" shall mean the purchase of assets contemplated by the
Wilson Purchase Agreement.
"Affiliate" shall mean any Person:
(a) which directly or indirectly controls, or is
controlled by, the Borrower; or
(b) which beneficially owns or holds 5% or more of
any class of Voting Stock of the Borrower.
<PAGE> 7
"Agent's Fee Letter" means the letter dated May 15, 1995 between the
Borrower and the Agent.
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Base Rate" means, on any date and with respect to all Base
Rate Loans, a fluctuating rate of interest per annum equal to the higher of:
(i) the rate of interest announced by the Agent from
time to time in New York, New York as its base rate; or
(ii) one percent (1%) per annum above the fluctuating
rate of interest that is the rate determined by RBN to be the opening
rate per annum paid or payable by it on the day in question in New
York, New York for federal funds purchased overnight from other
banking institutions.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by the RBN in connection with extensions of credit.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Agent will give notice promptly to the Borrower and the Lenders
of changes in the Alternate Base Rate.
"Applicable Margin" means (i) 0.80% during the period in which the
Interest Coverage Ratio is greater than 4.5 to 1 or (ii) 1.00% during the
period in which the Interest Coverage Ratio is equal to or less than 4.5 to 1;
provided, however, that the Applicable Margin during the period from the
Effective Date until the first anniversary of the Effective Date will be 0.80%.
Any increase or decrease in the Applicable Margin resulting from a
change in the Interest Coverage Ratio shall become effective as of the first
day of the Fiscal Quarter immediately following the date the financial
statements described in Sections 7.1.1(a) and 7.1.1(b) are delivered to the
Agent; provided, however, that if such financial statements are not delivered
during such preceding Fiscal Quarter, the Applicable Margin shall be the amount
defined in subparagraph (ii) above.
"Assignee Lender" is defined in Section 10.11.1.
"Authorized Officer" means, relative to the Borrower, those of its
officers whose signatures and incumbency shall have been certified to the Agent
and the Lenders pursuant to Section 5.1.1.
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<PAGE> 8
"Available Borrowing Base" means, at any time, the excess (if any) of
the Borrowing Base, as calculated in the then most recently delivered Borrowing
Base Certificate, over the aggregate principal amount of all outstanding Other
Borrowing Base Debt.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Beneficial Ownership" has the meaning given to such term in Rule
13d-3 under the Securities Exchange Act of 1934, as amended, and as it may be
further amended from time to time.
"Borrower" is defined in the preamble.
"Borrowing" means the Loans of the same type and, in the case of
Eurodollar Rate Loans, having the same Interest Period made by all Lenders on
the same Business Day and pursuant to the same Borrowing Request in accordance
with Section 2.1.
"Borrowing Base" means at any time an amount equal to the sum of (i)
eighty percent (80%) of the unpaid principal amount of Eligible Receivables of
the Borrower plus (ii) sixty percent (60%) of the Eligible Inventory of the
Borrower.
"Borrowing Base Certificate" means a certificate of an Authorized
Officer of the Borrower, substantially in the form of Exhibit B, or such other
form as the Agent may approve from time to time, setting forth a calculation of
the Borrowing Base.
"Borrowing Base Debt" means the Loans and the Other Borrowing Base
Debt.
"Borrowing Request" means a loan request and certificate duly executed
by an Authorized Officer of the Borrower, substantially in the form of Exhibit
C hereto.
"Business Day" means
(a) any day which is neither a Saturday or Sunday nor a
legal holiday on which banks are authorized or required to be closed
in New York, New York and Chicago, Illinois; and
(b) relative to the making, continuing, prepaying or
repaying of any Eurodollar Rate Loans, any day on which dealings in
Dollars are carried on in the London interbank market.
"Capital Lease" shall mean any lease of property which in accordance
with GAAP should be capitalized on the lessee's balance sheet, or for which the
amount of the asset and liability
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<PAGE> 9
thereunder as if so capitalized should be disclosed in a note to such balance
sheet, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP, and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"Change in Control" means
(a) the acquisition, through purchase or otherwise (including
the agreement to act in concert without more), by any Person (other
than Designated Persons) or group of Persons acting in concert (other
than Designated Persons), directly or indirectly, in one or more
transactions, of Beneficial Ownership or control of securities
representing more than 30% of the combined voting power of the
Borrower's Voting Stock; or
(b) the distribution by the Borrower of cash, securities or
other properties (other than regular periodic cash dividends at a rate
which is substantially consistent with past practice, including with
respect to increases in dividends, and other than common stock of the
Borrower or rights to acquire common stock of the Borrower) to holders
of capital stock (including by means of dividend, reclassification,
recapitalization or otherwise) which, together with all other such
distributions during the 365-day period preceding the date of such
distribution, has an aggregate fair market value in excess of an
amount equal to 30% of the fair market value of the Voting Stock of
the Borrower outstanding on the date immediately prior to such
distribution.
A merger or consolidation pursuant to Section 7.2.7 with respect to
which the Voting Stock of the surviving corporation is more than 30% owned by a
Person or group of Persons acting in concert (other than Designated Persons)
who did not own such Voting Stock prior to such merger or consolidation shall
constitute a "Change of Control."
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
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<PAGE> 10
"Commitment" means, relative to any Lender, such Lender's obligation
to make Loans pursuant to Section 2.1.1.
"Commitment Amount" means, on any date, $80,000,000, as such amount
may be reduced from time to time pursuant to Section 2.2.
"Commitment Termination Date" means, for each Lender, May 30, 1998, as
such date may be extended by such Lender pursuant to the provisions of Section
2.7.
"Consolidated Adjusted Net Worth" shall mean Consolidated
Shareholders' Equity less all goodwill, tradenames, trademarks, patents,
organizational expense, unamortized debt discount and expense and other
intangible assets properly classified as intangibles in accordance with GAAP
and incurred after the date of consummation of the Acquisition.
"Consolidated Earnings Available for Fixed Charges" shall mean
Consolidated Net Earnings plus taxes, Consolidated Interest Expense, and
minimum operating lease payments.
"Consolidated Earnings Available for Interest Expense" shall mean, for
any period, Consolidated Net Earnings for such period before deduction of any
amount which, in conformity with GAAP, would be set forth opposite the caption
"income tax expense" (including deferred income taxes) (or any like caption) on
a consolidated income statement of Borrower for such period, plus Consolidated
Interest Expense for such period plus the amortization of any financing cost
and of any debt discount, plus an amount which, in conformity with GAAP, would
be set forth opposite the caption "depreciation and amortization expenses" (or
any like caption) (including, without limitation, amortization of intangible
assets) on such an income statement for such period, to the extent the same are
deducted from Borrower's net revenues, in conformity with GAAP, in determining
Consolidated Net Earnings for such period.
"Consolidated Interest Expense" shall mean the interest expense
(including capitalized and noncapitalized interest, the interest component of
Rentals under Capitalized Leases and any expense associated with the
termination of a swap arrangement) of the Borrower and its Subsidiaries on a
consolidated basis for any period.
"Consolidated Net Earnings" shall mean the net earnings of the
Borrower and its Subsidiaries in accordance with GAAP, excluding:
(a) extraordinary items (including extraordinary gains and
losses, and including acquisition closing costs including agent's
fees); and
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<PAGE> 11
(b) any equity interest of the Borrower on the unremitted
earnings of any corporation not a Subsidiary.
"Consolidated Shareholders' Equity" shall mean consolidated
shareholders' equity of the Borrower and its Subsidiaries determined in
accordance with GAAP.
"Consolidated Total Assets" shall mean the total assets of the
Borrower and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consolidated Total Capitalization" shall mean the sum of Consolidated
Adjusted Net Worth and Funded Debt.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit D hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of
the Code or Section 4001 of ERISA.
"Debt" shall mean, for any Person (i) all items of borrowings,
including Capitalized Leases, which in accordance with GAAP would be included
in determining total liabilities as shown on the liability side of a balance
sheet of such Person as of the date at which Indebtedness is to be determined,
(ii) all Guaranties (other than Guaranties of Indebtedness of such Person or a
Subsidiary of such Person by a Subsidiary of such Person, or of a Subsidiary of
by such Person), letters of credit and endorsements (other than of notes, bills
and checks presented to banks for collection or deposit in the ordinary course
of business), in each case to support Indebtedness of other Persons; and (iii)
all items of borrowings secured by any mortgage, pledge or Lien existing on
property owned subject to such mortgage, pledge or Lien, whether or not the
borrowings secured thereby shall have been assumed by such Person or any
Subsidiary.
"Declining Lender" is defined in Section 2.7.
"Default" means any condition, occurrence or event that after notice
or lapse of time or both would constitute on Event of Default.
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<PAGE> 12
"Designated Persons" means any of the following:
(a) (i) Henry S. Dorfman, Marla Dorfman, Gayle Weiss, Carolyn
Dorfman and Joel Dorfman; (ii) the estates of the Persons set forth in
clause (i); and (iii) inter vivos or testamentary trusts the
beneficiaries of which are one or more Persons falling within the
scope of clauses (i) or (ii) above;
(b) Joel Dorfman, Henry S. Dorfman, Louis Glazier, Michael
Rozzano, Keith Jahnke and Edward Boan;
(c) a group of Persons fifty percent or more of which are
comprised of Persons set forth in paragraphs (a) and/or (b) above; or
(d) an Employee Stock Ownership Plan as defined in Section
4975(e)(7) of the Code.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule I, as it may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Agent and the Required
Lenders.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in a Lender
Assignment Agreement or such other office of a Lender (or any successor or
assign of such Lender) within the United States as may be designated from time
to time by notice from such Lender, as the case may be, to each other Person
party hereto.
"Effective Date" means the date this Agreement becomes effective
pursuant to Section 10.8.
"Eligible Inventory" means inventory of the Borrower valued at the
lower of cost or fair market, excluding inventory which: (a) consists of
obsolete or unsalable items or (b) is subject to a Lien in favor of any Person.
"Eligible Receivable" at any time means a Receivable that meets each
of the following requirements:
(i) the obligor is not an Affiliate of the Borrower;
(ii) the obligor of which is not the obligor of any Receivable as to
which any payment or part thereof remains unpaid for more than 60 days from the
original due date for such payment in an aggregate amount of 20% or more of the
aggregate unpaid principal amount of all the Receivables of such obligor;
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<PAGE> 13
(iii) as to which any payment or part thereof is past due for more
than 30 days from the original due date for such payment;
(iv) with regard to which the obligor thereof is not insolvent or the
subject of any bankruptcy or insolvency proceeding or which has made an
assignment for the benefit of creditors, suspended normal business operations,
dissolved, liquidated, terminated its existence, ceased to pay its debts as
they become due or suffered a receiver or trustee to be appointed for any of
its assets or affairs;
(v) which is denominated and payable only in Dollars; and
(vi) which is owned by the Borrower free and clear of any Liens.
"Environmental Laws" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to public health and safety
and protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"Eurodollar Rate Loan" means a Loan bearing interest, at all times
during an Interest Period applicable to such Loan, at a fixed rate of interest
determined by reference to the LIBOR Rate (Reserve Adjusted).
"Event of Default" is defined in Section 8.1.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of fifty-two consecutive weeks ending
on, in the case of 1995, May 26, 1995 and, in the case of any other Fiscal
Year, the last Friday in May; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the "1994 Fiscal Year") refer to the
Fiscal Year ending in May of such calendar year.
"Fixed Charge Coverage Ratio" means the ratio of Consolidated Earnings
Available for Fixed Charges to Fixed Charges measured as of the last day of any
Fiscal Quarter for the period consisting of four consecutive Fiscal Quarters
ending on such last day.
"Fixed Charges" means, for any period, the Consolidated Interest
Expense of the Borrower and its Subsidiaries for such
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<PAGE> 14
period, plus the aggregate amount of the minimum net rent payments of Borrower
and its Subsidiaries for such period under all operating leases of Borrower and
its Subsidiaries.
"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"Funded Debt" shall, at any time, mean the aggregate principal amount
of Debt of the Borrower and its Subsidiaries on a consolidated basis minus the
lesser of $10,000,000 and the principal amount of the Loans then outstanding.
"GAAP" is defined in Section 1.4.
"Guaranty" means all obligations (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection
or obligations incurred in the ordinary course of business in connection with
repurchase agreements) of a Person guaranteeing or, in effect, guaranteeing any
Indebtedness, dividend or other obligation, of any other Person in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligations, (y) to maintain working capital or
other balance sheet condition or otherwise to advance or make available funds
for the purchase or payment of such Indebtedness or obligation, (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness, or (iv) otherwise to
assure the owner of the Indebtedness or obligation against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness
equal to the maximum aggregate amount of such obligation, liability or
dividend.
"Hazardous Material" means:
(a) any "hazardous substance," as defined by CERCLA;
(b) any "hazardous waste," as defined by the Resource
Conservation and Recovery Act, as amended;
(c) any petroleum product; or
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<PAGE> 15
(d) any pollutant or contaminant or hazardous, dangerous
or toxic chemical, material or substance within the meaning of any
other applicable federal, state or local law, regulation, ordinance or
requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning
any hazardous, toxic or dangerous waste, substance or material, all as
amended or hereafter amended.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"herein," "hereof," "hereto," "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document, as the case may be, as a whole and not to any particular
Section, paragraph or provision of this Agreement or such other Loan Document.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of the Borrower, any qualification or exception to such opinion or
certification:
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of
matters relevant to such financial statement; or
(c) which relates to the treatment or classification of
any item in such financial statement and which, as a condition to its
removal, would require an adjustment to such item the effect of which
would be to cause the Borrower to be in default of any of its
obligations under Section 7.2.4.
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and
all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
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<PAGE> 16
(b) all obligations, contingent or otherwise, relative to
the face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(c) all obligations of such Person as lessee under leases
which have been or should be, in accordance with GAAP, recorded as
Capitalized Leases;
(d) all other items which, in accordance with GAAP, would
be included as liabilities on the liability side of the balance sheet
of such Person as of the date at which Indebtedness is to be
determined;
(e) net liabilities of such Person under all Hedging
Obligations;
(f) whether or not so included as liabilities in
accordance with GAAP, all obligations of such Person to pay the
deferred purchase price of property or services, and indebtedness
(excluding prepaid interest thereon) secured by a Lien on property
owned or being purchased by such Person (including indebtedness
arising under conditional sales or other title retention agreements),
whether or not such indebtedness shall have been assumed by such
Person or is limited in recourse; and
(g) all Guaranties of such Person in respect of any of
the foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer.
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Interest Coverage Ratio" means the ratio of Consolidated Earnings
Available for Interest Expense to Consolidated Interest Expense measured as of
the last day of any Fiscal Quarter for the period consisting of four
consecutive Fiscal Quarters ending on such last day.
"Interest Period" means, relative to any Eurodollar Rate Loan, the
period beginning on (and including) the date on which such Eurodollar Rate Loan
is made or continued as, or converted into, a Eurodollar Rate Loan pursuant to
Section 2.3 or 2.4, and shall end on (but exclude) the day which numerically
corresponds to such date one, two, three or six months thereafter (or, if such
month has no numerically corresponding day, on the last Business Day of such
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<PAGE> 17
month), in either case as the Borrower may select in its relevant notice
pursuant to Section 2.3 or 2.4; provided, however, that
(a) the Borrower shall not be permitted to select
Interest Periods to be in effect at any one time which have expiration
dates occurring on more than ten different dates;
(b) Interest Periods commencing on the same date for
Loans comprising part of the same Borrowing shall be of the same
duration;
(c) if such Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the
next following Business Day (unless such next following Business Day
is the first Business Day of a calendar month, in which case such
Interest Period shall end on the Business Day next preceding such
numerically corresponding day); and
(d) no Interest Period may end later than the Commitment
Termination Date.
"Investment" means, relative to any Person:
(a) any loan or advance made by such Person to any other
Person (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business);
(b) any Guaranty of such Person; and
(c) any ownership or similar interest held by such Person
in any other Person.
The amount of any Investment shall be the original principal or capital amount
thereof, less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person) and
shall, if made by the transfer or exchange of property other than cash, be
deemed to have been made in an original principal or capital amount equal to
the fair market value of such property.
"Lender Assignment Agreement" means a Lender Assignment Agreement
substantially in the form of Exhibit E hereto.
"Lenders" is defined in the preamble.
"LIBOR Office" means, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in the
Lender Assignment Agreement or such other office of a Lender as designated from
time to time by notice from such Lender to the Borrower and the Agent, whether
or not outside the
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<PAGE> 18
United States, which shall be making or maintaining Eurodollar Rate Loans of
such Lender hereunder.
"LIBOR Rate" means the rate with respect to the relevant Interest
Period to be determined on the basis of the offered rates for deposits in
Dollars for the relevant Interest Period which appear on Telerate Page 3750
(or, if such service or page is not available, such other service or page as
the Agent may determine as the appropriate service and page for the purpose of
displaying offered rates of leading reference banks in London for interbank
deposits in U.S. Dollars) as of 11:00 A.M. (London time) on the day that is two
(2) Business Days prior to the first day of the relevant Interest Period.
"LIBOR Rate (Reserve Adjusted)" means, relative to any Loan to be
made, continued or maintained as, or converted into, a Eurodollar Rate Loan for
any Interest Period, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined pursuant to the following formula:
LIBOR Rate = LIBOR Rate
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBOR Rate (Reserve Adjusted) for any Interest Period for
Eurodollar Rate Loans will be determined by the Agent on the basis of the LIBOR
Reserve Percentage in effect on, and the applicable rates furnished to and
received by the Agent from RBN, two Business Days before the first day of such
Interest Period.
"LIBOR Reserve Percentage" of RBN for the Interest Period for any
Eurodollar Rate Loan means the reserve percentage applicable during such
Interest Period (or if more than one such percentage shall be so applicable,
the daily average of such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) under regulations
issued from time to time by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other marginal
reserve requirement) for such Lender with respect to liabilities or assets
consisting of or including "eurocurrency liabilities" (as such term is defined
in Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time) having a term equal to such Interest Period.
"Lien" shall mean with respect to any Person, any mortgage, lien,
pledge, adverse claim, charge, security interest or other encumbrance in or on,
or interest or title of any vendor, lessor, lender or other secured party to or
of such Person under a conditional sale or other title retention agreement or
Capital Lease with respect to, any property or asset of such Person, or the
signing or filing of a financing statement which names such Person
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<PAGE> 19
as debtor, or the signing of any security agreement authorizing any other party
as the secured party thereunder to file any financing statement.
"Loan" is defined in Section 2.1.1.
"Loan Document" means this Agreement, the Notes and the Agent's Fee
Letter.
"Majority-Owned Subsidiary" means, when applied to a Subsidiary, any
Subsidiary 80% or more of the Voting Stock of which is owned by the Borrower or
a Majority-Owned Subsidiary (other than Voting Stock required to be held as
director's qualifying stock).
"Note" means a promissory note of the Borrower payable to any Lender,
in the form of Exhibit A hereto (as such promissory note may be amended,
endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of the Borrower to such Lender resulting from outstanding Loans,
and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"Obligations" means all obligations (monetary or otherwise) of the
Borrower arising under or in connection with this Agreement, the Notes and each
other Loan Document.
"Organic Document" means, relative to the Borrower, its certificate of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
"Other Borrowing Base Debt" means any Indebtedness outstanding under a
credit line or other facility between the Borrower and a Lender (or any other
Person to the extent the aggregate principal amount outstanding to all such
other Persons does not exceed $2,000,000 at any time), providing for borrowings
for a period of less than one year.
"Participant" is defined in Section 10.11.2.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan," as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Borrower or any corporation, trade or business that is, along with the
Borrower, a member of a Controlled Group, may have liability, including any
liability by reason of having been a substantial employer within the meaning of
section 4063 of ERISA at any time during the preceding five years, or by
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<PAGE> 20
reason of being deemed to be a contributing sponsor under section 4069 of
ERISA.
"Percentage" means, relative to any Lender, the percentage set forth
opposite its signature hereto or set forth in the Lender Assignment Agreement,
as such percentage may be adjusted from time to time pursuant to Lender
Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and
delivered pursuant to Section 10.11.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Property" means any real or personal or tangible or intangible asset.
"Quarterly Payment Date" means the first day of each April, July,
October, and January or, if any such day is not a Business Day, the next
succeeding Business Day.
"RBN" is defined in the preamble.
"Receivable" means any right to payment of the Borrower from any
Person arising from the sale of goods or services by the Borrower in the
ordinary course of its business.
"Release" means a "release," as such term is defined in CERCLA.
"Replacement Lender" is defined in Section 2.7.
"Required Lenders" means, at any time, Lenders holding at least
66 2/3% of the then aggregate outstanding principal amount of the Notes then
held by the Lenders, or, if no such principal amount is then outstanding,
Lenders having at least 66 2/3% of the Commitments.
"Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect
from time to time.
"Restricted Payment" is defined in Section 7.2.6.
"Sale and Lease-Back Transaction" means any arrangement, directly or
indirectly, with any Person whereby a seller or a transferor shall sell or
otherwise transfer any real or personal property and then or thereafter lease
(whether or not a Capitalized
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<PAGE> 21
Lease), or repurchase under any extended purchase contract, the same or similar
property from the purchaser or the transferee of such property.
"Stated Maturity Date" means, with respect to the Loans of any Lender,
such Lender's Commitment Termination Date.
"Subordinated Debt" shall mean the principal of and premium, if any,
and interest on all indebtedness of the Borrower, whether currently outstanding
or hereafter created, for money borrowed, or any indebtedness incurred in
connection with an acquisition or lease of property or with a merger,
consolidation, or acquisition of assets which is expressly subordinated in
right of payment pursuant to its terms to the Loans (whether or not it is
subordinated to other indebtedness of the Borrower).
"Subsidiary" shall mean any corporation of which the Borrower directly
or indirectly owns more than 50% of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency).
"Taxes" is defined in Section 4.6.
"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan, or a Eurodollar Rate Loan.
"United States" or "U.S." means the United States of America, its
fifty States and the District of Columbia.
"Voting Stock" shall mean capital stock of any class or classes of a
corporation having power under ordinary circumstances to vote for the election
of members of the board of directors of such corporation, or persons performing
similar functions (irrespective of whether or not at the time stock of any of
the class or classes shall have or might have special voting power or rights by
reason of the happening of any contingency).
"Welfare Plan" means a "welfare plan," as such term is defined in
section 3(1) of ERISA.
"Wilson Purchase Agreement" means the Asset Purchase Agreement, dated
as of April 29, 1995, between the Borrower and Doskocil Companies Incorporated,
Wilson Foods Corporation, Concordia Foods Corporation, Dixie Foods Company and
Shreveport Foods Company.
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SECTION 1.2. Use of Defined Terms. Unless otherwise defined or
the context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document,
notice and other communication delivered from time to time in connection with
this Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified,
references in this Agreement and in each other Loan Document to any Article or
Section are references to such Article or Section of this Agreement or such
other Loan Document, as the case may be, and, unless otherwise specified,
references in any Article, Section or definition to any clause are references
to such clause of such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless
otherwise specified, all accounting terms used herein or in any other Loan
Document shall be interpreted, all accounting determinations and computations
hereunder or thereunder (including under Section 7.2.4) shall be made, and all
financial statements required to be delivered hereunder or thereunder shall be
prepared in accordance with those generally accepted accounting principles
("GAAP") applied in the preparation of the financial statements referred to in
Section 6.5.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1. Commitments. On the terms and subject to the
conditions of this Agreement (including Article V), each Lender severally
agrees to make Loans pursuant to the Commitments described in this Section 2.1.
SECTION 2.1.1. Commitment of Each Lender. From time to time on any
Business Day occurring prior to such Lender's Commitment Termination Date, each
Lender will make loans (relative to such Lender, and of any type, its "Loans")
to the Borrower equal to such Lender's Percentage of the aggregate amount of
the Borrowing requested by the Borrower to be made on such day. The commitment
of each Lender described in this Section 2.1.1 is herein referred to as its
"Commitment." On the terms and subject to the conditions hereof, the Borrower
may from time to time borrow, prepay and reborrow Loans.
SECTION 2.1.2. Lenders Not Permitted or Required To Make Loans. No
Lender shall be permitted or required to make any Loan if, after giving effect
thereto, the aggregate outstanding principal amount of all Loans
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(a) of all Lenders would exceed the lesser of (i) the
Available Borrowing Base and (ii) the Commitment Amount, or
(b) of such Lender would exceed such Lender's Percentage
of the lesser of (i) the Available Borrowing Base and (ii) the
Commitment Amount.
SECTION 2.2. Reduction of Commitment Amount.
The Borrower may, from time to time on any Business Day occurring
after the time of the initial Borrowing hereunder, voluntarily reduce the
Commitment Amount; provided, however, that all such reductions shall require at
least five Business Days' prior notice to the Agent and be permanent, and any
partial reduction of the Commitment Amount shall be in a minimum amount of
$5,000,000 and in an integral multiple of $1,000,000.
SECTION 2.3. Borrowing Procedure. By delivering a Borrowing
Request to the Agent on or before 12:00 Noon, New York City time, on a Business
Day, the Borrower may from time to time irrevocably request, on not less than
three Business Days' notice (in the case of a request for a Eurodollar Loan) or
on the day of the requested Borrowing (in the case of a request for a Base Rate
Loan), that a Borrowing be made in a minimum amount of $500,000 and an integral
multiple of $100,000 or in the unused amount of the Commitments. The Agent
shall promptly advise each Lender of such Borrowing Request. On the terms and
subject to the conditions of this Agreement, each Borrowing shall be comprised
of the type of Loans, and shall be made on the Business Day, specified in such
Borrowing Request. On or before 12:00 Noon, New York City time, on such
Business Day if the requested Borrowing is for Eurodollar Loans or on or before
2:00 p.m., New York City time, if the requested Borrowing is for Base Rate
Loans each Lender shall deposit with the Agent same-day funds in an amount
equal to such Lender's Percentage of the requested Borrowing. Such deposit
will be made to an account which the Agent shall specify from time to time by
notice to the Lenders. To the extent funds are received from the Lenders, the
Agent shall make such funds available to the Borrower by wire transfer to the
accounts the Borrower shall have specified in its Borrowing Request. No
Lender's obligation to make any Loan shall be affected by any other Lender's
failure to make any Loan.
SECTION 2.4. Continuation and Conversion Elections. By delivering
a Continuation/Conversion Notice to the Agent on or before 11:00 a.m., New York
City time, on a Business Day, the Borrower may from time to time irrevocably
elect on not less than three Business Days' notice that the total amount, or
any portion in an aggregate minimum amount of $500,000 and an integral multiple
of $100,000, of any Loans be, in the case of Base Rate Loans, converted into
Eurodollar Rate Loans or, in the case of Eurodollar Rate Loans, be converted
into a Base Rate Loan or continued as a
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Eurodollar Rate Loan (in the absence of delivery of a Continuation/Conversion
Notice with respect to any Eurodollar Rate Loan at least three Business Days
before the last day of the then current Interest Period with respect thereto,
such Eurodollar Rate Loan shall, on such last day, automatically convert to a
Base Rate Loan); provided, however, that (i) each such conversion or
continuation shall be pro-rated among the applicable outstanding Loans of all
Lenders, and (ii) no portion of the outstanding principal amount of any Loans
may be continued as, or be converted into, Eurodollar Rate Loans when any
Default has occurred and is continuing.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill
its obligation to make, continue or convert Eurodollar Rate Loans hereunder by
causing one of its foreign branches or Affiliates (or an international banking
facility created by such Lender) to make or maintain such Eurodollar Rate Loan;
provided, however, that such Eurodollar Rate Loan shall nonetheless be deemed
to have been made and to be held by such Lender, and the obligation of the
Borrower to repay such Eurodollar Rate Loan shall nevertheless be to such
Lender for the account of such foreign branch, Affiliate or international
banking facility. In addition, the Borrower hereby consents and agrees that,
for purposes of any determination to be made for purposes of Sections 4.1, 4.2,
4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund
all Eurodollar Rate Loans by purchasing, as the case may be, Dollar
certificates of deposit in the U.S. or Dollar deposits in its LIBOR Office's
interbank eurodollar market.
SECTION 2.6. Notes. Each Lender's Loans under its Commitment
shall be evidenced by a Note payable to the order of such Lender in a maximum
principal amount equal to such Lender's Percentage of the original Commitment
Amount. The Borrower hereby irrevocably authorizes each Lender to make (or
cause to be made) appropriate notations on the grid attached to such Lender's
Note (or on any continuation of such grid), which notations, if made, shall
evidence, inter alia, the date of, the outstanding principal of, and the
interest rate and Interest Period applicable to the Loans evidenced thereby.
Such notations shall be conclusive and binding on the Borrower absent manifest
error; provided, however, that the failure of any Lender to make any such
notations shall not limit or otherwise affect any Obligations of the Borrower.
SECTION 2.7. Extension of Commitment Termination Date. Sixty (60)
days prior to any anniversary of the Effective Date, the Borrower may, by
telephonic notice to the Agent (provided that telephonic notice shall be
promptly confirmed by the Borrower in writing), request an extension of the
Lenders' Commitment Termination Date for an additional year. The Agent shall
promptly notify the Lenders of such request. Each Lender shall decide, in its
individual and sole discretion, whether to so extend its
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Commitment Termination Date and shall notify the Borrower and the Agent if it
agrees to such extension at least fifteen (15) days prior to such anniversary.
Failure of a Lender to respond to a notice from the Agent of a request to
extend its Commitment Termination Date shall be deemed to constitute such
Lender's refusal to extend. If a Lender agrees to such extension, the new
Commitment Termination Date for such Lender shall be the date which is one year
after such Lender's existing Commitment Termination Date. With respect to each
Lender declining to extend the Commitment Termination Date (each a "Declining
Lender"), the Borrower may obtain the commitment of one or more other banks or
financial institutions that are willing to become a party to this Agreement and
replace such Declining Lenders; provided, however, that prior to obtaining such
commitments, the Borrower gives each of the Lenders extending its Commitment
Termination Date the opportunity to increase its commitment amount to an amount
which would include all or a portion of the Declining Lenders' Commitments. If
any of the Lenders increase their Commitments or the Borrower obtains the
commitment of one or more new Lenders (in each case a "Replacement Lender"),
the Declining Lender will negotiate in good faith with any such Replacement
Lender to assign the applicable portion of such Declining Lender's rights, and
transfer the applicable portion of its obligations, to such Replacement Lender;
provided, further that nothing herein shall relieve or discharge any Declining
Lender from any obligation hereunder unless such obligation is expressly
assumed by the Replacement Lender by such Replacement Lender's execution and
delivery of a Lender Assignment Agreement. If the Commitment Termination Date
is extended for some but not all of the Lenders and the Borrower has not
replaced all the Declining Lenders, on the Commitment Termination Date as in
effect before such extension, the Borrower shall pay to each Declining Lender
the principal balance of all Loans then outstanding to such Lender, together
with all interest accrued thereon and all fees due to such Lender hereunder.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments. The Borrower shall repay
in full the unpaid principal amount of each Loan upon the Stated Maturity Date
therefor. Prior thereto, the Borrower:
(a) may, from time to time on any Business Day, make a
voluntary prepayment, in whole or in part, of the outstanding
principal amount of any Loans; provided, however, that
(i) any such prepayment shall be made pro rata
among Loans of the same type and, if applicable, having the
same Interest Period of all Lenders;
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(ii) all voluntary prepayments of Eurodollar Loans
shall require at least five Business Days' prior written
notice to the Agent; and
(iii) all such voluntary partial prepayments shall be
in an aggregate minimum amount of $500,000 and an integral
multiple of $100,000;
(b) shall, on each date when any reduction in the
Commitment Amount shall become effective, including pursuant to
Section 2.2, make a mandatory prepayment of all Loans equal to the
excess, if any, of the aggregate outstanding principal amount of all
Loans over the Commitment Amount as so reduced;
(c) shall, if on any date the aggregate principal amount
of outstanding Loans exceeds the Available Borrowing Base, as
calculated in the then most recently delivered Borrowing Base
Certificate, make a mandatory prepayment of all Loans equal to such
excess; and
(d) shall, immediately upon any acceleration of the
Stated Maturity Date of any Loans pursuant to Section 8.2 or Section
8.3, repay all Loans, unless, pursuant to Section 8.3, only a portion
of all Loans is so accelerated.
Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 4.4. No voluntary
prepayment of principal of any Loans shall cause a reduction in the Commitment
Amount.
SECTION 3.2. Interest Provisions. Interest on the outstanding
principal amount of Loans shall accrue and be payable in accordance with this
Section 3.2.
SECTION 3.2.1. Rates. Pursuant to an appropriately delivered
Borrowing Request or Continuation/Conversion Notice, the Borrower may elect
that Loans comprising a Borrowing accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a
Base Rate Loan, equal to the sum of the Alternate Base Rate from time
to time in effect; and
(b) on that portion maintained as a Eurodollar Rate Loan,
during each Interest Period applicable thereto, equal to the sum of
the LIBOR Rate (Reserve Adjusted) for such Interest Period, plus the
Applicable Margin then in effect.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal
amount of any Loan is due and payable (whether on the Stated Maturity Date,
upon acceleration or otherwise), or after any
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other monetary Obligation of the Borrower shall have become due and payable,
the Borrower shall pay, but only to the extent permitted by law, interest
(after as well as before judgment) on such amounts at a rate per annum equal to
the rate which would otherwise be in effect, plus a margin of 2%.
SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall
be payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) if the Borrower reduces the Commitment to zero, on
the date of any payment or prepayment, in whole, of the principal
outstanding on such Loan pursuant to Section 3.1(b);
(c) with respect to Base Rate Loans, on each Quarterly
Payment Date occurring after the Effective Date;
(d) with respect to Eurodollar Rate Loans, the last day
of each applicable Interest Period (and, if such Interest Period shall
exceed three months, on the day which is three months after the first
day of such Interest Period) and if such Eurodollar Rate Loan is
prepaid prior to the last day of such Interest Period, on the date of
such prepayment; and
(e) on that portion of any Loans the Stated Maturity Date
of which is accelerated pursuant to Section 8.2 or Section 8.3,
immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth
in this Section 3.3. All such fees shall be non-refundable.
SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the
Agent for the account of each Lender, for the period (including any portion
thereof when its Commitment is suspended by reason of the Borrower's inability
to satisfy any condition of Article V) commencing on the Effective Date and
continuing through such Lender's Commitment Termination Date, a commitment fee
at the rate of .25 of 1% per annum on such Lender's Percentage of the sum of
the average daily unused portion of the Commitment Amount. Such commitment
fees shall be payable by the Borrower in arrears on each Quarterly Payment
Date, commencing with the first such day following the Effective Date and on
such Lender's Commitment Termination Date.
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SECTION 3.3.2. Facility Fee. The Borrower agrees to pay to the Agent
for the account of each Lender, a facility fee in an amount equal to .10 of 1%
of such Lender's Percentage of the Commitment Amount (without regard to any
reduction thereto), payable on the Effective Date.
SECTION 3.3.3. Agent's Fee. To the Agent for its own account, the
amounts set forth in the Agent's Fee Letter at the times set forth therein for
payment.
ARTICLE IV
CERTAIN EURODOLLAR RATE AND OTHER PROVISIONS
SECTION 4.1. Eurodollar Rate Lending Unlawful. If any Lender
shall determine (which determination shall, upon notice thereof to the Borrower
and the Lenders, be conclusive and binding on the Borrower) that the
introduction of or any change in or in the interpretation of any law makes it
unlawful, or any central bank or other governmental authority asserts that it
is unlawful, for such Lender to make, continue or maintain any Loan as, or to
convert any Loan into, a Eurodollar Rate Loan, the obligations of all Lenders
to make, continue, maintain or convert any such Loans shall, upon such
determination, forthwith be suspended until such Lender shall notify the Agent
that the circumstances causing such suspension no longer exist, and all
Eurodollar Rate Loans shall automatically convert into Base Rate Loans at the
end of the then current Interest Periods with respect thereto or sooner, if
required by such law or assertion.
SECTION 4.2. Deposits Unavailable. If the Agent shall have
determined that:
(a) Dollar certificates of deposit or Dollar deposits, as
the case may be, in the relevant amount and for the relevant Interest
Period are not available to RBN in its relevant market; or
(b) by reason of circumstances affecting RBN's relevant
market, adequate means do not exist for ascertaining the interest rate
applicable hereunder to Eurodollar Rate Loans of such type;
then, upon notice from the Agent to the Borrower and the Lenders, the
obligations of all Lenders under Section 2.3 and Section 2.4 to make or
continue any Loans as, or to convert any Loans into, Eurodollar Rate Loans
shall forthwith be suspended until the Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist.
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SECTION 4.3. Increased Eurodollar Rate Loan Costs, etc. The
Borrower agrees to reimburse each Lender for any increase in the cost to such
Lender of, or any reduction in the amount of any sum receivable by such Lender
in respect of, making, continuing or maintaining (or of its obligation to make,
continue or maintain) any Loans as, or of converting (or of its obligation to
convert) any Loans into, Eurodollar Rate Loans. Such Lender shall promptly
notify the Agent and the Borrower in writing of the occurrence of any such
event, such notice to state, in reasonable detail, the reasons therefor and the
additional amount required fully to compensate such Lender for such increased
cost or reduced amount. Such additional amounts shall be payable by the
Borrower directly to such Lender within five days of its receipt of such
notice, and such notice shall, in the absence of manifest error, be conclusive
and binding on the Borrower.
SECTION 4.4. Funding Losses. In the event any Lender shall incur
any loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a
Eurodollar Rate Loan) as a result of:
(a) any conversion or repayment or prepayment of the
principal amount of any Eurodollar Rate Loans on a date other than the
scheduled last day of the Interest Period applicable thereto, whether
pursuant to Section 3.1 or otherwise;
(b) any Loans not being made as Eurodollar Rate Loans in
accordance with the Borrowing Request therefor; or
(c) any Loans not being continued as, or converted into,
Eurodollar Rate Loans in accordance with the Continuation/Conversion
Notice therefor;
then, upon the written notice of such Lender to the Borrower (with a copy to
the Agent), the Borrower shall, within five days of its receipt thereof, pay
directly to such Lender such amount as will (in the reasonable determination of
such Lender) reimburse such Lender for such loss or expense. Such written
notice (which shall include calculations in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on the Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by any Lender or any Person controlling
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such Lender, and such Lender determines (in its sole and absolute discretion)
that the rate of return on its or such controlling Person's capital as a
consequence of its Commitment or the Loans made by such Lender is reduced to a
level below that which such Lender or such controlling Person could have
achieved but for the occurrence of any such circumstance, then, in any such
case upon notice from time to time by such Lender to the Borrower, the Borrower
shall immediately pay directly to such Lender additional amounts sufficient to
compensate such Lender or such controlling Person for such reduction in rate of
return. A statement of such Lender as to any such additional amount or amounts
(including calculations thereof in reasonable detail) shall, in the absence of
manifest error, be conclusive and binding on the Borrower. In determining such
amount, such Lender may use any method of averaging and attribution that it (in
its sole and absolute discretion) shall deem applicable.
SECTION 4.6. Taxes. All payments by the Borrower of principal of,
and interest on, the Loans and all other amounts payable hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by any Lender's net
income or receipts (such non-excluded items being called "Taxes"). In the
event that any withholding or deduction from any payment to be made by the
Borrower hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Borrower will:
(a) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or
other documentation satisfactory to the Agent evidencing such payment
to such authority; and
(c) pay to the Agent for the account of the Lenders such
additional amount or amounts as is necessary to ensure that the net
amount actually received by each Lender will equal the full amount
such Lender would have received had no such withholding or deduction
been required.
Moreover, if any Taxes are directly asserted against the Agent or any Lender
with respect to any payment received by the Agent or such Lender hereunder, the
Agent or such Lender may pay such Taxes and the Borrower will promptly pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by such Person after the
payment of such Taxes (including any Taxes on such additional amount) shall
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equal the amount such Person would have received had not such Taxes been
asserted.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Agent, for the account of the
respective Lenders, the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders for any incremental Taxes,
interest or penalties that may become payable by any Lender as a result of any
such failure. For purposes of this Section 4.6, a distribution hereunder by
the Agent or any Lender to or for the account of any Lender shall be deemed a
payment by the Borrower.
Upon the request of the Borrower or the Agent, each Lender that is
organized under the laws of a jurisdiction other than the United States shall,
prior to the due date of any payments under the Notes, execute and deliver to
the Borrower and the Agent, on or about the first scheduled payment date in
each Fiscal Year, one or more (as the Borrower or the Agent may reasonably
request) United States Internal Revenue Service Forms 4224 or Forms 1001 or
such other forms or documents (or successor forms or documents), appropriately
completed, as may be applicable to establish the extent, if any, to which a
payment to such Lender is exempt from withholding or deduction of Taxes.
SECTION 4.7. Payments, Computations, etc. Unless otherwise
expressly provided, all payments by the Borrower pursuant to this Agreement,
the Notes or any other Loan Document shall be made by the Borrower to the Agent
for the pro rata account of the Lenders entitled to receive such payment. All
such payments required to be made to the Agent shall be made, without setoff,
deduction or counterclaim, not later than 11:00 a.m., New York City time, on
the date due, in same day or immediately available funds, to such account as
the Agent shall specify from time to time by notice to the Borrower. Funds
received after that time shall be deemed to have been received by the Agent on
the next succeeding Business Day. The Agent shall promptly remit in same day
funds to each Lender its share, if any, of such payments received by the Agent
for the account of such Lender. All interest and fees shall be computed on the
basis of the actual number of days (including the first day but excluding the
last day) occurring during the period for which such interest or fee is payable
over a year comprised of 360 days (or, in the case of interest on a Base Rate
Loan, 365 days or, if appropriate, 366 days). Whenever any payment to be made
shall otherwise be due on a day which is not a Business Day, such payment shall
(except as otherwise required by clause (c) of the definition of the term
"Interest Period" with respect to Eurodollar Rate Loans) be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest and fees, if any, in connection with such payment.
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SECTION 4.8. Sharing of Payments. If any Lender shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff or otherwise) on account of any Loan (other than pursuant to the terms
of Sections 4.3, 4.4 and 4.5) in excess of its pro rata share of payments then
or therewith obtained by all Lenders, such Lender shall purchase from the other
Lenders such participations in Loans made by them as shall be necessary to
cause such purchasing Lender to share the excess payment or other recovery
ratably with each of them; provided, however, that if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and each Lender which has sold a
participation to the purchasing Lender shall repay to the purchasing Lender the
purchase price to the ratable extent of such recovery together with an amount
equal to such selling Lender's ratable share (according to the proportion of
(a) the amount of such selling Lender's required
repayment to the purchasing Lender
to
(b) the total amount so recovered from the purchasing
Lender)
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section may,
to the fullest extent permitted by law, exercise all its rights of payment
(including pursuant to Section 4.9) with respect to such participation as fully
as if such Lender were the direct creditor of the Borrower in the amount of
such participation. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a setoff to which
this Section applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the
rights of the Lenders entitled under this Section to share in the benefits of
any recovery on such secured claim.
SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of
any Default described in clauses (a) through (d) of Section 8.19 or any other
Event of Default, have the right to appropriate and apply to the payment of the
Obligations owing to it (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender a continuing security
interest in, any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter maintained with such Lender; provided, however,
that any such appropriation and application shall be subject to the provisions
of Section 4.8. Each Lender agrees promptly to notify the Borrower and the
Agent after any such setoff
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and application made by such Lender; provided, however, that the failure to
give such notice shall not affect the validity of such setoff and application.
The rights of each Lender under this Section are in addition to other rights
and remedies (including other rights of setoff under applicable law or
otherwise) which such Lender may have.
SECTION 4.10. Use of Proceeds. The Borrower shall apply the
proceeds of the initial Borrowing to finance the Acquisition and to pay in full
all the Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") of
the Disclosure Schedule. Proceeds of each other Borrowing shall be used for
general corporate purposes and working capital purposes of the Borrower and its
Subsidiaries. Without limiting the foregoing, no proceeds of any Loan will be
used to acquire any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934 or any "margin stock," as
defined in F.R.S. Board Regulation U.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1. Initial Borrowing. The obligations of the Lenders to
fund the initial Borrowing shall be subject to the prior or concurrent
satisfaction of each of the conditions precedent set forth in this Section 5.1.
SECTION 5.1.1. Resolutions, etc. The Agent shall have received from
the Borrower a certificate, dated the date of the initial Borrowing, of its
Secretary or Assistant Secretary as to
(a) resolutions of its Board of Directors then in full
force and effect authorizing the execution, delivery and performance
of this Agreement, the Notes and each other Loan Document to be
executed by it; and
(b) the incumbency and signatures of those of its
officers authorized to act with respect to this Agreement, the Notes
and each other Loan Document executed by it,
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary of the Borrower canceling or
amending such prior certificate.
SECTION 5.1.2. Delivery of Notes. The Agent shall have received,
for the account of each Lender, its Notes duly executed and delivered by the
Borrower.
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SECTION 5.1.3. Acquisition Consummated. The conditions set forth in
Article X of the Wilson Purchase Agreement to the obligations of the Borrower
to consummate the Acquisition shall have been satisfied in full (without
amendment or waiver of, or other forbearance to exercise any rights with
respect to, any of the terms or provisions thereof by the Borrower), and the
Acquisition shall have been consummated in accordance with Article X of the
Wilson Purchase Agreement.
SECTION 5.1.4. Payment of Outstanding Indebtedness, etc. All
Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the
Disclosure Schedule, together with all interest, all prepayment premiums and
other amounts due and payable with respect thereto, shall have been paid in
full (including, to the extent necessary, from proceeds of the initial
Borrowing).
SECTION 5.1.5. Environmental Report. The Agent shall have received a
Phase I environmental assessment with respect to the assets subject to the
Acquisition, which assessment shall be, in form and substance, satisfactory to
the Lenders.
SECTION 5.1.6. Opinions of Counsel. The Agent shall have received
opinions, dated the date of the initial Borrowing and addressed to the Agent
and all Lenders, from Honigman, Miller, Schwartz & Cohn, counsel to the
Borrower, substantially in the form of Exhibit F hereto.
SECTION 5.1.7. Closing Fees, Expenses, etc. The Agent shall have
received for its own account, or for the account of each Lender, as the case
may be, all fees, costs and expenses due and payable pursuant to Sections 3.3
and 10.3, if then invoiced.
SECTION 5.2. All Borrowings. The obligation of each Lender to
fund any Loan on the occasion of any Borrowing (including the initial
Borrowing) shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 5.2.
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both
before and after giving effect to any Borrowing (but, if any Default of the
nature referred to in Section 8.1.5 shall have occurred with respect to any
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds thereof) the following statements shall be true and
correct:
(a) the representations and warranties set forth in
Article VI (excluding, however, those contained in Section 6.7) shall
be true and correct with the same effect as if then made (unless
stated to relate solely to an earlier date, in which case such
representations and warranties shall be true and correct as of such
earlier date);
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(b) except as disclosed by the Borrower to the Agent and
the Lenders pursuant to Section 6.7:
(i) no labor controversy, litigation, arbitration
or governmental investigation or proceeding shall be pending
or, to the knowledge of the Borrower, threatened against the
Borrower or any of its Subsidiaries which might materially
adversely affect the Borrower's consolidated business,
operations, assets, revenues, properties or prospects or which
purports to affect the legality, validity or enforceability of
this Agreement, the Notes or any other Loan Document; and
(ii) no development shall have occurred in any
labor controversy, litigation, arbitration or governmental
investigation or proceeding disclosed pursuant to Section 6.7
which might materially adversely affect the consolidated
businesses, operations, assets, revenues, properties or
prospects of the Borrower and its Subsidiaries;
(c) no Default shall have then occurred and be
continuing, and neither the Borrower nor any of its Subsidiaries are
in material violation of any law or governmental regulation or court
order or decree; and
(d) the aggregate outstanding principal amount of the Loans
shall not exceed the Available Borrowing Base, as calculated in the
then most recently delivered Borrowing Base Certificate, and the
Borrower shall not be delinquent in the delivery of any Borrowing Base
Certificate.
SECTION 5.2.2. Borrowing Request. The Agent shall have received a
Borrowing Request for such Borrowing. Each of the delivery of a Borrowing
Request and the acceptance by the Borrower of the proceeds of such Borrowing
shall constitute a representation and warranty by the Borrower that on the date
of such Borrowing (both immediately before and after giving effect to such
Borrowing and the application of the proceeds thereof) the statements made in
Section 5.2.1 are true and correct.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this
Agreement and to make Loans hereunder, the Borrower represents and warrants
unto the Agent and each Lender as set forth in this Article VI.
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SECTION 6.1. Organization, etc. The Borrower and each of its
Subsidiaries is a corporation validly organized and existing and in good
standing under the laws of the State of its incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its business requires such qualification, and
has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its Obligations under
this Agreement, the Notes and each other Loan Document and to own and hold
under lease its property and to conduct its business substantially as currently
conducted by it.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The
execution, delivery and performance by the Borrower of this Agreement, the
Notes and each other Loan Document executed or to be executed by it, and the
Borrower's participation in the consummation of the Acquisition are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not:
(a) contravene the Borrower's Organic Documents;
(b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or
affecting the Borrower; or
(c) result in, or require the creation or imposition of,
any Lien on any of the Borrower's properties.
SECTION 6.3. Government Approval, Regulation, etc. No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body or other Person is required for
the due execution, delivery or performance by the Borrower of this Agreement,
the Notes or any other Loan Document or for the Borrower's participation in the
consummation of the Acquisition. Neither the Borrower nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and the
Notes and each other Loan Document executed by the Borrower will, on the due
execution and delivery thereof, constitute, the legal, valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms.
SECTION 6.5. Financial Information. The balance sheets of the
Borrower and each of its Subsidiaries as at May 27, 1994, and
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the related statements of earnings and cash flow of the Borrower and each of
its Subsidiaries, copies of which have been furnished to the Agent and each
Lender, have been prepared in accordance with GAAP consistently applied, and
present fairly the consolidated financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended.
SECTION 6.6. No Material Adverse Change. Since the date of the
financial statements described in Section 6.5, there has been no material
adverse change in the financial condition, operations, assets, business,
properties or prospects of the Borrower and its Subsidiaries.
SECTION 6.7. Litigation, Labor Controversies, etc. There is no
pending or, to the knowledge of the Borrower, threatened litigation, action,
proceeding, or labor controversy affecting the Borrower or any of its
Subsidiaries, or any of their respective properties, businesses, assets or
revenues, which may materially adversely affect the financial condition,
operations, assets, business, properties or prospects of the Borrower or any
Subsidiary or which purports to affect the legality, validity or enforceability
of this Agreement, the Notes or any other Loan Document, except as disclosed in
Item 6.7 ("Litigation") of the Disclosure Schedule.
SECTION 6.8. Subsidiaries. The Borrower has no Subsidiaries,
except those Subsidiaries:
(a) which are identified in Item 6.8 ("Existing
Subsidiaries") of the Disclosure Schedule; or
(b) which are permitted to have been acquired in
accordance with Section 7.2.5 or 7.2.10.
SECTION 6.9. Ownership of Properties. Set forth on Item 6.9 of
the Disclosure Schedule is a complete and accurate list of all real property
owned by the Borrower after giving effect to the Acquisition, showing as of the
Effective Date the street address, county or other relevant jurisdiction,
state, record owner and book value thereof. The Borrower and each of its
Subsidiaries owns good and marketable title to all of its properties and
assets, real and personal, tangible and intangible, of any nature whatsoever
(including patents, trademarks, trade names, service marks and copyrights),
free and clear of all Liens, charges or claims (including infringement claims
with respect to patents, trademarks, copyrights and the like) except as
permitted pursuant to Section 7.2.3.
SECTION 6.10. Taxes. The Borrower and each of its Subsidiaries has
filed all tax returns and reports required by law
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to have been filed by it and has paid all taxes and governmental charges
thereby shown to be owing, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION 6.11. Pension and Welfare Plans. During the
twelve-consecutive-month period prior to the date of the execution and delivery
of this Agreement and prior to the date of any Borrowing hereunder, no steps
have been taken to terminate any Pension Plan, and no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a Lien
under section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which might result in the incurrence
by the Borrower or any member of the Controlled Group of any material
liability, fine or penalty. Except as disclosed in Item 6.11 ("Employee
Benefit Plans") of the Disclosure Schedule, neither the Borrower nor any member
of the Controlled Group has any contingent liability with respect to any
post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Title I of ERISA.
SECTION 6.12. Environmental Warranties. Except as set forth in
Item 6.12 ("Environmental Matters") of the Disclosure Schedule:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Borrower or any of its
Subsidiaries have been, and continue to be, owned or leased by the
Borrower and its Subsidiaries in material compliance with all
Environmental Laws;
(b) there have been no past, and there are no pending or
threatened:
(i) claims, complaints, notices or requests for
information received by the Borrower or any of its
Subsidiaries with respect to any alleged violation of any
Environmental Law; or
(ii) complaints, notices or inquiries to the
Borrower or any of its Subsidiaries regarding potential
liability under any Environmental Law;
(c) there have been no Releases of Hazardous Materials
at, on or under any property now or previously owned or leased by the
Borrower or any of its Subsidiaries that, singly or in the aggregate,
have, or may reasonably be expected to have, a material adverse effect
on the financial condition, operations, assets, business, properties
or prospects of the Borrower and its Subsidiaries;
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(d) the Borrower and its Subsidiaries have been issued
and are in material compliance with all permits, certificates,
approvals, licenses and other authorizations relating to environmental
matters and necessary or desirable for their businesses;
(e) no property now or previously owned or leased by the
Borrower or any of its Subsidiaries is listed or proposed for listing
(with respect to owned property only) on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list of
sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably
be expected to have, a material adverse effect on the financial
condition, operations, assets, business, properties or prospects of
the Borrower and its Subsidiaries;
(g) neither Borrower nor any Subsidiary of the Borrower
has directly transported or directly arranged for the transportation
of any Hazardous Material to any location which is listed or proposed
for listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations
which may lead to material claims against the Borrower or such
Subsidiary thereof for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA;
(h) there are no polychlorinated biphenyls or friable
asbestos present at any property now or previously owned or leased by
the Borrower or any Subsidiary of the Borrower that, singly or in the
aggregate, have, or may reasonably be expected to have, a material
adverse effect on the financial condition, operations, assets,
business, properties or prospects of the Borrower and its
Subsidiaries; and
(i) no conditions exist at, on or under any property now
or previously owned or leased by the Borrower which, with the passage
of time, or the giving of notice or both, would give rise to liability
under any Environmental Law.
SECTION 6.13. Regulations G, U and X. The Borrower is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock, and no proceeds of any Loans will be used for a purpose which
violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X.
Terms for which meanings
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are provided in F.R.S. Board Regulation G, U or X or any regulations
substituted therefor, as from time to time in effect, are used in this Section
with such meanings.
SECTION 6.14. Liabilities. As of the Effective Date, except for
trade payables, payroll not yet due and payable, and real estate, personal
property and other similar taxes not yet due and payable arising in the
ordinary course of the business of the Borrower, and except for those
capitalized lease obligations, operating leases and other Indebtedness of the
Borrower disclosed in Item 6.14(a) of the Disclosure Schedule, the Borrower
does not have any capitalized lease obligations, operating leases or other
Indebtedness except the Obligations. As of the Effective Date, except as
disclosed in Item 6.14(b) of the Disclosure Schedule, the Borrower is not
liable under any Guaranty with respect to the obligations of any other Person.
SECTION 6.15. Leases. Set forth in Item 6.15 to the Disclosure
Schedule is a complete and accurate list of all leases of real property under
which the Borrower is the lessee after giving effect to the Acquisition and
having an annual rental cost of more than $50,000, showing as of the Effective
Date the street address, county or other relevant jurisdiction, state, lessor,
lessee, expiration date and annual rental cost thereof. Each such lease is the
legal, valid and binding obligation of the lessor thereof, enforceable in
accordance with its terms (subject to limitations imposed by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity) and the effect of applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws of general application
relating to or affecting creditors' rights).
SECTION 6.16. Material Contracts. Set forth in Item 6.16 to the
Disclosure Schedule is a complete and accurate list of all material contracts
of the Borrower showing as of the Effective Date after giving effect to the
Acquisition the parties, subject matter and term thereof. As of the Effective
Date, each such material contract has been duly authorized, executed and
delivered by all parties thereto, has not been amended or otherwise modified,
is in full force and effect and is binding upon and enforceable against all
parties thereto in accordance with its terms (subject to limitations imposed by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity) and the effect of applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws of general
application relating to or affecting creditors' rights), and, to the best
knowledge of the Borrower, as of the Effective Date, there exists no material
default under any such material contract by any party thereto.
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SECTION 6.17. Intellectual Property. Set forth in Item 6.17 to the
Disclosure Schedule is a complete and accurate list of all patents, trademarks,
trade names, service marks and copyrights, and all applications therefor and
licenses thereof, of the Borrower after giving effect to the Acquisition,
showing as of the Effective Date the jurisdiction in which registered, the
registration number, the date of registration and the expiration date.
SECTION 6.18. Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of the Borrower in
writing to the Agent or any Lender for purposes of or in connection with this
Agreement or any transaction contemplated hereby (including the Thorn Apple
Valley, Inc. Senior Note Financing Private Placement Memorandum dated April,
1995, true and complete copies of which were furnished to the Agent and each
Lender in connection with its execution and delivery hereof) is, and all other
such factual information hereafter furnished by or on behalf of the Borrower to
the Agent or any Lender will be, true and accurate in every material respect on
the date as of which such information is dated or certified and as of the date
of execution and delivery of this Agreement by the Agent and such Lender, and
such information is not, or shall not be, as the case may be, incomplete by
omitting to state any material fact necessary to make such information not
misleading.
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. The Borrower agrees with the
Agent and each Lender that, until all Commitments have terminated and all
Obligations have been paid and performed in full, the Borrower will perform the
obligations set forth in this Section 7.1.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The
Borrower will furnish, or will cause to be furnished, to each Lender and the
Agent copies of the following financial statements, reports, notices and
information:
(a) as soon as available and in any event within 45 days
after the end of each of the first three Fiscal Quarters of each
Fiscal Year of the Borrower, consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such Fiscal Quarter and
consolidated statements of earnings and cash flow of the Borrower and
its Subsidiaries for such Fiscal Quarter and for the period commencing
at the end of the previous Fiscal Year and ending with the end of such
Fiscal Quarter, certified by the chief financial Authorized Officer of
the Borrower;
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(b) as soon as available and in any event within 90 days
after the end of each Fiscal Year of the Borrower, a copy of the
annual audit report for such Fiscal Year for the Borrower and its
Subsidiaries, including therein consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such Fiscal Year and
consolidated statements of earnings and cash flow of the Borrower and
its Subsidiaries for such Fiscal Year, in each case certified (without
any Impermissible Qualification) in a manner acceptable to the Agent
and the Required Lenders by Coopers & Lybrand or other independent
public accountants acceptable to the Agent and the Required Lenders,
together with a certificate from such accountants to the effect that,
in making the examination necessary for the signing of such annual
report by such accountants, they have not become aware of any Default
or Event of Default that has occurred and is continuing, or, if they
have become aware of such Default or Event of Default, describing such
Default or Event of Default and the steps, if any, being taken to cure
it;
(c) as soon as available and in any event within 45 days
after the end of each of the first three Fiscal Quarters of each
Fiscal Year and within 90 days after the end of the last Fiscal
Quarter of each Fiscal Year, a certificate, executed by the chief
financial Authorized Officer of the Borrower, showing (in reasonable
detail and with appropriate calculations and computations in all
respects satisfactory to the Agent) compliance with the financial
covenants set forth in Section 7.2.4 and the calculation of the
Interest Coverage Ratio for such Fiscal Quarter;
(d) as soon as available and in any event within 45 days
after the end of each Fiscal Quarter, a Borrowing Base Certificate
setting forth a calculation of the Borrowing Base as of the last
Business Day of such Fiscal Quarter; provided, that (i) upon the
written request of the Required Lenders or (ii) if the difference
between the Available Borrowing Base and the principal amount of Loans
outstanding is, or has at any time been, less than $15,000,000, upon
the written request of at least two of the Lenders, the Borrower
shall, within twenty days after the end of each month (commencing with
the month in which such request is made), deliver a Borrowing Base
Certificate setting forth a calculation of the Borrowing Base as of
the last Business Day of such month. The Borrower may also deliver
interim Borrowing Base Certificates from time to time if it so desires
in order to demonstrate an intra-month increase in the Borrowing Base
and hence potentially increase its borrowing capacity;
(e) as soon as possible and in any event within three
days after the occurrence of each Default, a statement of the
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chief financial Authorized Officer of the Borrower setting forth
details of such Default and the action which the Borrower has taken
and proposes to take with respect thereto;
(f) as soon as possible and in any event within three
days after (x) the occurrence of any adverse development with respect
to any litigation, action, proceeding, or labor controversy described
in Section 6.7 or (y) the commencement of any labor controversy,
litigation, action, proceeding of the type described in Section 6.7,
notice thereof and copies of all documentation relating thereto;
(g) promptly after the sending or filing thereof, copies
of all reports which the Borrower sends to any of its securityholders,
and all reports and registration statements which the Borrower or any
of its Subsidiaries files with the Securities and Exchange Commission
or any national securities exchange;
(h) immediately upon becoming aware of the institution of
any steps by the Borrower or any other Person to terminate any Pension
Plan, or the failure to make a required contribution to any Pension
Plan if such failure is sufficient to give rise to a Lien under
section 302(f) of ERISA, or the taking of any action with respect to a
Pension Plan which could result in the requirement that the Borrower
furnish a bond or other security to the PBGC or such Pension Plan, or
the occurrence of any event with respect to any Pension Plan which
could result in the incurrence by the Borrower of any material
liability, fine or penalty, or any material increase in the contingent
liability of the Borrower with respect to any post-retirement Welfare
Plan benefit, notice thereof and copies of all documentation relating
thereto; and
(i) such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as any Lender through the Agent may from time to time
reasonably request.
SECTION 7.1.2. Compliance with Laws, etc. The Borrower will, and
will cause each of its Subsidiaries to, comply in all material respects with
all applicable laws, rules, regulations and orders, such compliance to include
(without limitation):
(a) the maintenance and preservation of its corporate
existence and qualification as a foreign corporation; and
(b) the payment, before the same become delinquent, of
all taxes, assessments and governmental charges imposed upon it or
upon its property except to the extent being diligently contested in
good faith by appropriate proceedings and for
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which adequate reserves in accordance with GAAP shall have been set
aside on its books.
SECTION 7.1.3. Maintenance of Properties. The Borrower will, and
will cause each of its Subsidiaries to, maintain, preserve, protect and keep
its properties in good repair, working order and condition, and make necessary
and proper repairs, renewals and replacements so that its business carried on
in connection therewith may be properly conducted at all times unless the
Borrower determines in good faith that the continued maintenance of any of its
properties is no longer economically desirable.
SECTION 7.1.4. Insurance. The Borrower will, and will cause each of
its Subsidiaries to, maintain or cause to be maintained with responsible
insurance companies insurance with respect to its properties and business
(including business interruption insurance) against such casualties and
contingencies and of such types and in such amounts as is customary in the case
of similar businesses and will, upon request of the Agent, furnish to each
Lender at reasonable intervals a certificate of an Authorized Officer of the
Borrower setting forth the nature and extent of all insurance maintained by the
Borrower and its Subsidiaries in accordance with this Section.
SECTION 7.1.5. Books and Records. The Borrower will, and will cause
each of its Subsidiaries to, keep books and records which accurately reflect
all of its business affairs and transactions and permit the Agent and each
Lender or any of their respective representatives, at reasonable times and
intervals, to visit all of its offices, to discuss its financial matters with
its officers and independent public accountant (and the Borrower hereby
authorizes such independent public accountant to discuss the Borrower's
financial matters with each Lender or its representatives whether or not any
representative of the Borrower is present) and to examine (and, at the expense
of the Borrower, photocopy extracts from) any of its books or other corporate
records. The Borrower shall pay any fees of such independent public accountant
incurred in connection with the Agent's or any Lender's exercise of its rights
pursuant to this Section.
SECTION 7.1.6. Environmental Covenant. The Borrower will, and will
cause each of its Subsidiaries to:
(a) use and operate all of its facilities and properties
in material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material
compliance therewith, and handle all Hazardous Materials in material
compliance with all applicable Environmental Laws;
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(b) immediately notify the Agent and provide copies upon
receipt of all written claims, complaints, notices or inquiries
relating to the condition of its facilities and properties or
compliance with Environmental Laws, and shall promptly cure and have
dismissed with prejudice to the satisfaction of the Agent any actions
and proceedings relating to compliance with Environmental Laws; and
(c) provide such information and certifications which the
Agent may reasonably request from time to time to evidence compliance
with this Section 7.1.6.
SECTION 7.2. Negative Covenants. The Borrower agrees with the
Agent and each Lender that, until all Commitments have terminated and all
Obligations have been paid and performed in full, the Borrower will perform the
obligations set forth in this Section 7.2.
SECTION 7.2.1. Business Activities. The Borrower will not, and will
not permit any of its Subsidiaries to, engage in any business activity, except
those described in the first recital and such activities as may be incidental
or related thereto.
SECTION 7.2.2. Indebtedness. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to exist or otherwise
become or be liable in respect of any Indebtedness, other than, without
duplication, the following:
(a) Indebtedness in respect of the Loans and other
Obligations;
(b) until the date of the initial Borrowing, Indebtedness
identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the
Disclosure Schedule;
(c) Indebtedness existing as of the Effective Date which
is identified in Item 7.2.2(c) ("Ongoing Indebtedness") of the
Disclosure Schedule;
(d) Indebtedness secured by Liens described in clause
(h), (j) or (k) of Section 7.2.3;
(e) unsecured Indebtedness incurred in the ordinary
course of business (including open accounts extended by suppliers on
normal trade terms in connection with purchases of goods and services,
but excluding Indebtedness incurred through the borrowing of money or
Guaranties);
(f) Hedging Obligations to a Lender;
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(g) Other Borrowing Base Debt so long as the aggregate
principal amount of such Indebtedness, together with the aggregate
principal amount of the Loans, does not exceed the Borrowing Base; or
(h) other unsecured Indebtedness of the Borrower and its
Subsidiaries, so long as at the time that such Indebtedness was
incurred the maturity date for such Indebtedness was after the
Committed Termination Date.
SECTION 7.2.3. Liens. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any Lien upon any
of its property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens for taxes, assessments or governmental charges
not then due and delinquent and for which a penalty has not attached
or the validity of which is being contested in good faith and by
proper proceedings and with respect to which adequate reserves are
maintained in accordance with GAAP;
(b) Liens arising in connection with court proceedings,
provided that the execution of such Liens is effectively stayed, such
Liens are being contested in good faith and adequate reserves are
maintained with respect thereto in accordance with GAAP;
(c) Liens arising in the ordinary course of business and
not incurred in connection with the borrowing of money, including
encumbrances in the nature of zoning restrictions, easements, rights
and restrictions of record on the use of real property, landlord's and
lessor's liens in the ordinary course of business, which do not,
individually or in the aggregate, materially interfere with the
conduct of the business of the Borrower and its Subsidiaries taken as
a whole and do not materially affect the value of the Property subject
to such Liens;
(d) Construction or materialmen's or mechanic's Liens
securing obligations not overdue or, if overdue, being contested in
good faith and by proper proceedings and with respect to which
adequate reserves are maintained in accordance with GAAP;
(e) Liens in connection with workers' compensation,
social security taxes or similar charges arising in the ordinary
course of business and not incurred in connection with the borrowing
of money;
(f) Liens existing on the Effective Date set forth in
Item 7.2.3(f) of the Disclosure Schedule;
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(g) Intercompany Liens (for purposes of intercompany
Liens, a Subsidiary shall mean any corporation of which the Borrower
directly or indirectly owns at least 80% of the Voting Stock);
(h) The extension, renewal or replacement of any Lien
permitted by the foregoing paragraph (f) in respect of the same
property theretofore subject thereto or the extension, renewal or
replacement (without increase of principal amount of the Indebtedness
originally incurred);
(i) Liens incurred in connection with obtaining or
performing government contracts in the ordinary course of business and
not incurred in connection with the borrowing of money;
(j) (i) Any Lien in property or in rights relating
thereto to secure any rights granted with respect to such property in
connection with the provision of all or a part of the purchase price
or cost of the construction of such property created contemporaneously
with, or within 270 days after, such acquisition or the completion of
such construction (except Liens at the Ponca City, Oklahoma facility
shall not be permitted under this provision), or (ii) any Lien in
property existing in such property at the time of acquisition thereof,
whether or not the debt secured thereby is assumed by the Borrower or
such Subsidiary, or (iii) any Lien existing in the property of a
corporation or other Person at the time such corporation or other
Person is acquired (whether by purchase of stock, by merger, or
consolidation or otherwise) by the Borrower or a Subsidiary, or at the
time of a purchase, lease or other acquisition of the properties of a
corporation or other Person by the Borrower or a Subsidiary; provided,
that (1) the transaction referred to in clause (iii) is otherwise
permitted under this Agreement and (2) the Indebtedness secured by any
such Lien referred to in clauses (i) through (iii) above shall not
exceed 100% of the fair market value on the related property at the
time the Lien was originally created;
(k) Liens in addition to those permitted by clauses (a)
through (j) above, securing Indebtedness of the Borrower or any
Subsidiary; provided, that at the time of the incurrence of any such
Lien the aggregate principal amount of all Indebtedness of the
Borrower and its Subsidiaries secured by Liens shall not exceed 20% of
Consolidated Adjusted Net Worth.
SECTION 7.2.4. Financial Condition. The Borrower will not permit:
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(a) Consolidated Adjusted Net Worth to be less than the
sum of (i) $80,000,000 and (ii) 50% of the Consolidated Net Earnings
for each Fiscal Year commencing with the 1996 Fiscal Year; provided,
however, that if Consolidated Net Earnings is less than zero in any
such Fiscal Year, such Consolidated Net Earnings shall be deemed to be
zero in such Fiscal Year for purposes of calculating the amount in
clause (ii) above.
(b) The Fixed Charge Coverage Ratio to be less than 1.50
to 1.
(c) The ratio of Funded Debt to Consolidated Total
Capitalization to be greater than .625 to 1 for the period from the
Effective Date through the 1997 Fiscal Year and .550 to 1 at any time
thereafter.
SECTION 7.2.5. Investments. The Borrower will not, and will not
permit any Subsidiary to, make, incur, assume or suffer to exist any Investment
in any other Person, except:
(a) Investments existing on the Effective Date set forth
in Item 7.2.5(a) of the Disclosure Schedule;
(b) Investments in certificates of deposit, repurchase
agreements or bankers' acceptances, maturing within one year from the
date or origin, issued by a bank organized under the laws of the
United States or any state thereof, having capital, surplus and
undivided profits aggregating at least $100,000,000;
(c) Investments in commercial paper maturing in 270 days
or less from the date of issuance which, at the time of acquisition by
the Borrower or any Subsidiary, is accorded at least an "A-1" rating
by Standard & Poor's Ratings Group or "P-1" by Moody's Investors
Service, Inc.;
(d) Investments in direct obligations of the United
States of America, or any agency thereof, the obligations of which are
guaranteed by the United States of America, maturing in twelve months
or less from the date of acquisition thereof;
(e) Investments in "money market" preferred stock rated
"A" or better by Standard & Poor's Corporation or "A2" by Moody's
Investors Service, Inc.;
(f) Tax-exempt floating rate option tender bonds backed
by an irrevocable letter of credit issued by a bank the long-term debt
rating of which is at least "AA" by Standard & Poor's Rating Group or
"A2" by Moody's Investors Service, Inc.;
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(g) Investments in Subsidiaries which operate principally
in lines of business similar to lines of business of the Borrower or
its Subsidiaries existing on the Effective Date;
(h) Investments in the Borrower's capital stock in an
amount not to exceed $20,000,000, so long as after giving effect to
any such investment the Borrower's ratio of Funded Debt to
Consolidated Total Capitalization is not more than .55 to 1; and
(i) Investments in or commitments to purchase foreign
currency; provided, that such Investment is made solely to the extent
that the Borrower and its Subsidiaries are obligated to make payments
to other Persons in such foreign currency.
In valuing any Investments for the purpose of applying the limitations
set forth above, such Investments shall be taken at the original cost thereof,
without allowance for any subsequent write-offs or appreciation or depreciation
therein, but less any amount repaid or recovered on account of capital or
principal.
For purposes of this Section 7.2.5 at any time when a corporation
becomes a Subsidiary, all investments of such corporation at such time shall be
deemed to have been made by such corporation, as a Subsidiary, at such time;
provided, however, that the Borrower shall have 60 days to dispose of any such
investments which are not permitted above.
SECTION 7.2.6. Restricted Payments, etc. On and at all times after
the Effective Date, the Borrower will not:
(a) declare or pay any dividends, either in cash or
Property, on any shares of its capital stock of any class (except
dividends or other distributions payable solely in shares of capital
stock of the Borrower); or
(b) directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of Borrower's capital stock of
any class or any warrants, rights or options to purchase or acquire
any shares of the Borrower's capital stock; or
(c) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in respect of its
capital stock; or
(d) make any payment, either directly or indirectly or
through any Subsidiary, of principal of any Subordinated Debt other
than at the expressed maturity date thereof and scheduled mandatory
prepayments or redemptions thereof in
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accordance with the terms in effect on the date of creation of such
Subordinated Debt;
each of the foregoing being herein a "Restricted Payment"; provided, however,
that:
(i) Borrower may, at any time when after giving effect
thereto no Event of Default or event which, with the giving of notice
or passage of time or both, may become an Event of Default shall have
occurred and be continuing, make Restricted Payments so long as the
aggregate amount of such Restricted Payments made after the Effective
Date does not exceed the sum of (a) $22,000,000; plus (b) 50% of
positive Consolidated Net Earnings for each Fiscal Quarter ending
after May 26, 1995 to and including the date of making the Restricted
Payment; minus (c) 100% of all negative Consolidated Net Earnings for
each such Fiscal Quarter; plus (d) the net proceeds from the sale or
issuance of shares of any class of stock of the Borrower for the
period commencing on the Effective Date through the date of
determination; and
(ii) Borrower may, at any time when after giving effect
thereto no Event of Default or event which, with the giving of notice
or passage of time or both, may become an Event of Default shall have
occurred and be continuing, make any repurchase of its common stock
permitted by Section 7.2.5(h).
The Borrower will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after its date of declaration.
Any dividend which complies with the provisions of this Section 7.2.6 on the
date of its declaration shall be deemed to comply on its date of payment,
provided that any intervening event giving rise to non-compliance is not the
result of a Restricted Payment.
SECTION 7.2.7. Consolidation, Merger, etc. The Borrower will not,
and will not permit any Subsidiary to, liquidate or dissolve, consolidate with,
or merge into or with, any other corporation, or purchase or otherwise acquire
all or substantially all of the assets of any Person (or of any division
thereof) except:
(a) any such Subsidiary may liquidate or dissolve
voluntarily into, and may merge with and into, the Borrower or any
other Subsidiary, and the assets or stock of any Subsidiary may be
purchased or otherwise acquired by the Borrower or any other
Subsidiary; and
(b) so long as no Default has occurred and is continuing
or would occur after giving effect thereto, the Borrower or any of its
Subsidiaries may purchase all or substantially all of the assets of
any Person, or acquire such Person by merger,
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so long as (i) the Borrower is the surviving corporation, (ii) such
Person is in the same line of business as the Borrower, and (iii) the
aggregate consideration paid therefor is less than $10,000,000;
provided, however, that such consideration may exceed $10,000,000 if,
30 days prior to such acquisition, the Borrower delivers to the Agent
pro forma financial statements giving effect to the proposed
transaction which demonstrates compliance with each of the financial
covenants of the Borrower set forth in Section 7.2.4 at all times
during the remainder of the Fiscal Year in which such transaction
occurs and during the next Fiscal Year thereafter.
SECTION 7.2.8. Asset Dispositions, etc. The Borrower will not, and
will not permit any Subsidiary to, sell, lease, transfer or otherwise dispose
of any assets, including the disposition of the stock of any Subsidiary and
including any Sale and Lease-Back Transaction (collectively, a "Disposition"),
in one or a series of transactions, other than in the ordinary course of
business, to any Person, other than the Borrower or a Majority-Owned Subsidiary
if immediately preceding such Disposition and after giving effect to such
Disposition, (a) during any twelve-consecutive-month period of the Borrower the
aggregate book value of all such assets sold, leased, transferred or otherwise
disposed of during such period, would exceed 10% of the Consolidated Total
Assets as of the end of the Borrower's immediately preceding Fiscal Year, and
(b) since the Effective Date of this Agreement, the aggregate book value of all
such assets sold, leased, transferred or otherwise disposed of would exceed 25%
of the Consolidated Total Assets as of the end of the Borrower's immediately
preceding fiscal year; provided, however, that the Borrower may, and may permit
any Subsidiary to, sell, lease, transfer or otherwise dispose of assets in
excess of the percentages specified in subparagraphs (a) and (b) above if the
cash proceeds therefrom are (x) utilized within one year after such Disposition
to purchase or are committed to the purchase of Property of a similar nature
and of at least equivalent value, or (y) used to prepay Funded Debt (except
Subordinated Debt), including the Loans, on a pro rata basis.
SECTION 7.2.9. Sales and Leasebacks. The Borrower will not, and will
not permit any Subsidiary to, effect any Sale and Lease-Back Transaction unless
such Sale and Lease-Back Transaction complies with the requirements of Sections
7.2.3 and 7.2.8 and the terms of such transaction are satisfactory to the
Required Lenders.
SECTION 7.2.10. Transactions with Affiliates. The Borrower will not,
and will not permit any Subsidiary to, enter into any transaction (including
the furnishing of goods or services) with an Affiliate except in the ordinary
course of business and on terms and conditions no less favorable to the
Borrower or such Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate.
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SECTION 7.2.11. Compliance with Borrowing Base. The Borrower will
not incur any Borrowing Base Debt if, after giving effect to such incurrence,
and any concurrent repayment of Loans or Other Borrowing Base Debt, the
aggregate principal amount of Borrowing Base Debt would exceed the Borrowing
Base.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following
events or occurrences described in this Section 8.1 shall constitute an "Event
of Default."
SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall
default in the payment or prepayment when due of any principal of or interest
on any Loan, or in the payment when due of any commitment fee or of any other
Obligation and such default shall continue unremedied for two Business Days.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty
of the Borrower made or deemed to be made hereunder, or in any other Loan
Document executed by it or any other writing or certificate furnished by or on
behalf of the Borrower to the Agent or any Lender for the purposes of or in
connection with this Agreement or any such other Loan Document (including any
certificates delivered pursuant to Article V), is or shall be incorrect when
made in any material respect.
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations.
The Borrower shall default in the due performance and observance of any of its
obligations under Section 7.2.
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations.
The Borrower shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by it, and
such default shall continue unremedied for a period of 30 days after notice
thereof shall have been given to the Borrower by the Agent or any Lender.
SECTION 8.1.5. Default on Other Indebtedness. A default shall occur
in the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 8.1.1) of the Borrower or any of its Subsidiaries having a
principal amount, individually or in the aggregate, in excess of $2,000,000; or
a default shall occur in the performance or observance of any obligation or
condition with respect to such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or such default shall continue
unremedied for any
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applicable period of time sufficient to permit the holder or holders of such
Indebtedness, or any trustee or agent for such holders, to cause such
Indebtedness to become due and payable prior to its expressed maturity.
SECTION 8.1.6. Judgments. Any judgment or order for the payment of
money in excess of $2,000,000 shall be rendered against the Borrower or any of
its Subsidiaries and there shall be any period during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect.
SECTION 8.1.7. Pension Plans. Any of the following events shall
occur with respect to any Pension Plan:
(a) the institution of any steps by the Borrower, any
member of its Controlled Group or any other Person to terminate a
Pension Plan if, as a result of such termination, the Borrower or any
such member could be required to make a contribution to such Pension
Plan, or could reasonably expect to incur a liability or obligation to
such Pension Plan, in excess of $2,000,000; or
(b) a contribution failure occurs with respect to any
Pension Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA.
SECTION 8.1.8. Control of the Borrower. Any Change in Control shall
occur.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower or any of
its Subsidiaries shall:
(a) become insolvent or generally fail to pay, or admit
in writing its inability or unwillingness to pay, debts as they become
due;
(b) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian
for the Borrower or any of its Subsidiaries or any property of any
thereof, or make a general assignment for the benefit of creditors;
(c) in the absence of such application, consent or
acquiescence, permit or suffer to exist the appointment of a trustee,
receiver, sequestrator or other custodian for the Borrower or any of
its Subsidiaries or for a substantial part of the property of any
thereof, and such trustee, receiver, sequestrator or other custodian
shall not be discharged within 60 days; provided, that the Borrower
and each Subsidiary hereby expressly authorize the Agent and each
Lender to appear
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in any court conducting any relevant proceeding during such 60-day
period to preserve, protect and defend their rights under the Loan
Documents;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding in respect of the Borrower or any
of its Subsidiaries; and, if any such case or proceeding is not
commenced by the Borrower or such Subsidiary, such case or proceeding
shall be consented to or acquiesced in by the Borrower or such
Subsidiary or shall result in the entry of an order for relief or
shall remain for 60 days undismissed; provided, that the Borrower and
each Subsidiary hereby expressly authorize the Agent and each Lender
to appear in any court conducting any such case or proceeding during
such 60-day period to preserve, protect and defend their rights under
the Loan Documents; or
(e) take any action authorizing, or in furtherance of,
any of the foregoing.
SECTION 8.2. Action if Bankruptcy. If any Event of Default
described in clauses (a) through (d) of Section 8.1.9) shall occur, the
Commitments (if not theretofore terminated) shall automatically terminate and
the outstanding principal amount of all outstanding Loans and all other
Obligations shall automatically be and become immediately due and payable,
without notice or demand.
SECTION 8.3. Action if Other Event of Default. If any Event of
Default (other than any Event of Default described in clauses (a) through (d)
of Section 8.1.9 shall occur for any reason, whether voluntary or involuntary,
and be continuing, the Agent, upon the direction of the Required Lenders, shall
by notice to the Borrower declare all or any portion of the outstanding
principal amount of the Loans and other Obligations to be due and payable
and/or the Commitments (if not theretofore terminated) to be terminated,
whereupon the full unpaid amount of such Loans and other Obligations which
shall be so declared due and payable shall be and become immediately due and
payable, without further notice, demand or presentment, and/or, as the case may
be, the Commitments shall terminate.
ARTICLE IX
THE AGENT
SECTION 9.1. Actions. Each Lender hereby appoints RBN as its
Agent under and for purposes of this Agreement, the Notes and each other Loan
Document. Each Lender authorizes the Agent to act
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on behalf of such Lender under this Agreement, the Notes and each other Loan
Document and, in the absence of other written instructions from the Required
Lenders received from time to time by the Agent (with respect to which the
Agent agrees that it will comply, except as otherwise provided in this Section
or as otherwise advised by counsel), to exercise such powers hereunder and
thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof, together with such powers as may be reasonably
incidental thereto. Each Lender hereby indemnifies (which indemnity shall
survive any termination of this Agreement) the Agent, pro rata according to
such Lender's Percentage, from and against any and all liabilities,
obligations, losses, damages, claims, costs or expenses of any kind or nature
whatsoever which may at any time be imposed on, incurred by, or asserted
against, the Agent in any way relating to or arising out of this Agreement, the
Notes and any other Loan Document, including reasonable attorneys' fees, and as
to which the Agent is not reimbursed by the Borrower; provided, however, that
no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, claims, costs or expenses which are determined by
a court of competent jurisdiction in a final proceeding to have resulted solely
from the Agent's gross negligence or wilful misconduct. The Agent shall not be
required to take any action hereunder, under the Notes or under any other Loan
Document, or to prosecute or defend any suit in respect of this Agreement, the
Notes or any other Loan Document, unless it is indemnified hereunder to its
satisfaction. If any indemnity in favor of the Agent shall be or become, in
the Agent's determination, inadequate, the Agent may call for additional
indemnification from the Lenders and cease to do the acts indemnified against
hereunder until such additional indemnity is given.
SECTION 9.2. Funding Reliance, etc. Unless the Agent shall have
been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m.,
New York City time, on the day prior to a Borrowing, in the case of a Borrowing
of Eurodollar Loans, that such Lender will not make available the amount which
would constitute its Percentage of such Borrowing on the date specified
therefor, the Agent may assume that such Lender has made such amount available
to the Agent and, in reliance upon such assumption, make available to the
Borrower a corresponding amount. If and to the extent that such Lender shall
not have made such amount available to the Agent, such Lender and the Borrower
severally agree to repay the Agent forthwith on demand such corresponding
amount, together with interest thereon, for each day from the date the Agent
made such amount available to the Borrower to the date such amount is repaid to
the Agent, at the interest rate applicable at the time to Loans comprising such
Borrowing in the case of a repayment by the Borrower and at the rate per annum
paid or payable by the Agent in New York, New York, for federal
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funds purchased overnight from other banking institutions, in the case of a
repayment by a Lender.
SECTION 9.3. Exculpation. Neither the Agent nor any of its
directors, officers, employees or agents shall be liable to any Lender for any
action taken or omitted to be taken by it under this Agreement or any other
Loan Document, or in connection herewith or therewith, except for its own
wilful misconduct or gross negligence, nor responsible for any recitals or
warranties herein or therein, nor for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Loan Document, nor to
make any inquiry respecting the performance by the Borrower of its obligations
hereunder or under any other Loan Document. Any such inquiry which may be made
by the Agent shall not obligate it to make any further inquiry or to take any
action. The Agent shall be entitled to rely upon advice of counsel concerning
legal matters and upon any notice, consent, certificate, statement or writing
which the Agent believes to be genuine and to have been presented by a proper
Person.
SECTION 9.4. Successor. The Agent may resign as such at any time
upon at least 30 days' prior notice to the Borrower and all Lenders. If the
Agent at any time shall resign, the Required Lenders may (with the written
consent of the Borrower which consent shall not be unreasonably withheld or
delayed) appoint another Lender as a successor Agent, which shall thereupon
become the Agent hereunder. If no successor Agent shall have been so appointed
by the Required Lenders, and shall have accepted such appointment, within 30
days after the retiring Agent's giving notice of resignation, then the retiring
Agent may (with the written consent of the Borrower which consent shall not be
unreasonably withheld or delayed), on behalf of the Lenders, appoint a
successor Agent, which shall be one of the Lenders or a commercial banking
institution organized under the laws of the U.S. (or any State thereof) or a
U.S. branch or agency of a commercial banking institution, having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
be entitled to receive from the retiring Agent such documents of transfer and
assignment as such successor Agent may reasonably request, and shall thereupon
succeed to and become vested with all rights, powers, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Agent's resignation
hereunder as the Agent, the provisions of:
(a) this Article IX shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Agent
under this Agreement; and
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(b) Section 10.3 and Section 10.4 shall continue to inure
to its benefit.
SECTION 9.5. Loans by RBN. RBN shall have the same rights and
powers with respect to (x) the Loans made by it or any of its Affiliates, and
(y) the Notes held by it or any of its Affiliates as any other Lender and may
exercise the same as if it were not the Agent. RBN and its Affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or Affiliate of the Borrower as if
RBN were not the Agent hereunder.
SECTION 9.6. Credit Decisions. Each Lender acknowledges that it
has, independently of the Agent and each other Lender, and based on such
Lender's review of the financial information of the Borrower, this Agreement,
the other Loan Documents (the terms and provisions of which being satisfactory
to such Lender) and such other documents, information and investigations as
such Lender has deemed appropriate, made its own credit decision to extend its
Commitment. Each Lender also acknowledges that it will, independently of the
Agent and each other Lender, and based on such other documents, information and
investigations as it shall deem appropriate at any time, continue to make its
own credit decisions as to exercising or not exercising from time to time any
rights and privileges available to it under this Agreement or any other Loan
Document.
SECTION 9.7. Copies, etc. The Agent shall give prompt notice to
each Lender of each notice or request required or permitted to be given to the
Agent by the Borrower pursuant to the terms of this Agreement (unless
concurrently delivered to the Lenders by the Borrower). The Agent will
distribute to each Lender each document or instrument received for its account
and copies of all other communications received by the Agent from the Borrower
for distribution to the Lenders by the Agent in accordance with the terms of
this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and the Required Lenders; provided, however, that
no such amendment, modification or waiver which would:
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(a) modify any requirement hereunder that any particular
action be taken by all the Lenders or by the Required Lenders shall be
effective unless consented to by each Lender;
(b) modify this Section 10.1, change the definition of
"Required Lenders," increase the Commitment Amount or the Percentage
of any Lender, reduce any fees described in Article III, or extend the
Commitment Termination Date shall be made without the consent of each
Lender and each holder of a Note;
(c) extend the due date for, or reduce the amount of, any
scheduled repayment or prepayment of principal of or interest on any
Loan (or reduce the principal amount of or rate of interest on any
Loan) shall be made without the consent of the holder of that Note
evidencing such Loan; or
(d) affect adversely the interests, rights or obligations
of the Agent shall be made without consent of the Agent.
No failure or delay on the part of the Agent, any Lender or the holder of any
Note in exercising any power or right under this Agreement or any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on
the Borrower in any case shall entitle it to any notice or demand in similar or
other circumstances. No waiver or approval by the Agent, any Lender or the
holder of any Note under this Agreement or any other Loan Document shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2. Notices. All notices and other communications
provided to any party hereto under this Agreement or any other Loan Document
shall be in writing or by facsimile and addressed, delivered or transmitted to
such party at its address, or facsimile number set forth below its signature
hereto or set forth in the Lender Assignment Agreement or at such other
address, Telex or facsimile number as may be designated by such party in a
notice to the other parties. Any notice, if mailed and properly addressed with
postage prepaid or if properly addressed and sent by pre-paid courier service,
shall be deemed given when received; any notice, if transmitted by facsimile,
shall be deemed given when transmitted.
SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees
to pay on demand all expenses of the Agent (including the fees and
out-of-pocket expenses of counsel to the Agent and of
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local counsel, if any, who may be retained by counsel to the Agent) in
connection with
(a) the negotiation, preparation, execution and delivery
of this Agreement and of each other Loan Document, including schedules
and exhibits, and any amendments, waivers, consents, supplements or
other modifications to this Agreement or any other Loan Document as
may from time to time hereafter be required, whether or not the
transactions contemplated hereby are consummated, and
(b) the preparation and review of the form of any
document or instrument relevant to this Agreement or any other Loan
Document.
The Borrower further agrees to pay, and to save the Agent and the Lenders
harmless from all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Agreement, the borrowings
hereunder, or the issuance of the Notes or any other Loan Documents. The
Borrower also agrees to reimburse the Agent and each Lender upon demand for all
reasonable out-of-pocket expenses (including attorneys' fees and legal
expenses) incurred by the Agent or such Lender in connection with (x) the
negotiation of any restructuring or "work-out," whether or not consummated, of
any Obligations and (y) the enforcement of any Obligations.
SECTION 10.4. Indemnification. In consideration of the execution
and delivery of this Agreement by each Lender and the extension of the
Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent
and each Lender and each of their respective officers, directors, employees and
agents (collectively, the "Indemnified Parties") free and harmless from and
against any and all actions, causes of action, suits, losses, costs,
liabilities and damages, and expenses incurred in connection therewith
(irrespective of whether any such Indemnified Party is a party to the action
for which indemnification hereunder is sought), including reasonable attorneys'
fees and disbursements (collectively, the "Indemnified Liabilities"), incurred
by the Indemnified Parties or any of them as a result of, or arising out of, or
relating to:
(a) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of any Loan;
(b) the entering into and performance of this Agreement
and any other Loan Document by any of the Indemnified Parties
(including any action brought by or on behalf of the Borrower as the
result of any determination by the Required Lenders pursuant to
Article V not to fund any Borrowing);
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(c) any investigation, litigation or proceeding related
to any acquisition or proposed acquisition by the Borrower or any of
its Subsidiaries of all or any portion of the stock or assets of any
Person, whether or not the Agent or such Lender is party thereto;
(d) any investigation, litigation or proceeding related
to any environmental cleanup, audit, compliance or other matter
relating to the protection of the environment or the Release by the
Borrower or any of its Subsidiaries of any Hazardous Material; or
(e) the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or releases from,
any real property owned or operated by the Borrower or any Subsidiary
thereof of any Hazardous Material (including any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under
any Environmental Law), regardless of whether caused by, or within the
control of, the Borrower or such Subsidiary;
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or wilful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
SECTION 10.5. Survival. The obligations of the Borrower under
Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders
under Section 9.1, shall in each case survive any termination of this
Agreement, the payment in full of all Obligations and the termination of all
Commitments.
SECTION 10.6. Severability. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 10.7. Headings. The various headings of this Agreement and
of each other Loan Document are inserted for convenience only and shall not
affect the meaning or interpretation of this Agreement or such other Loan
Document or any provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several
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counterparts, each of which shall be executed by the Borrower and the Agent and
be deemed to be an original and all of which shall constitute together but one
and the same agreement. This Agreement shall become effective (the "Effective
Date") when counterparts hereof executed on behalf of the Borrower and each
Lender (or notice thereof satisfactory to the Agent) shall have been received
by the Agent and notice thereof shall have been given by the Agent to the
Borrower and each Lender.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE
NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS. This
Agreement, the Notes and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersede any prior agreements, written or oral, with respect
thereto.
SECTION 10.10. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that:
(a) the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of the Agent
and all Lenders; and
(b) the rights of sale, assignment and transfer of the
Lenders are subject to Section 10.11.
SECTION 10.11. Sale and Transfer of Loans and Note; Participations
in Loans and Note. Each Lender may assign, or sell participations in, its
Loans and Commitment to one or more other Persons in accordance with this
Section 10.11.
SECTION 10.11.1. Assignments. Any Lender,
(a) with the written consents of the Borrower and the
Agent (which consents shall not be unreasonably delayed or withheld
and which consent, in the case of the Borrower, shall be deemed to
have been given in the absence of a written notice delivered by the
Borrower to the Agent, on or before the fifth Business Day after
receipt by the Borrower of such Lender's request for consent, stating,
in reasonable detail, the reasons why the Borrower proposes to
withhold such consent), may at any time assign and delegate to one or
more commercial banks or other financial institutions, and
(b) with notice to the Borrower and the Agent, but
without the consent of the Borrower or the Agent, may assign
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and delegate to any of its Affiliates, to any other Lender or to any
Federal Reserve Bank,
(each Person described in either of the foregoing clauses as being the Person
to whom such assignment and delegation is to be made, being hereinafter
referred to as an "Assignee Lender"), all or any fraction of such Lender's
total Loans and Commitment (which assignment and delegation shall be of a
constant, and not a varying, percentage of all the assigning Lender's Loans and
Commitment) in a minimum aggregate amount of $5,000,000; provided, however,
that any such Assignee Lender will comply, if applicable, with the provisions
contained in the penultimate sentence of Section 4.6; and further, provided,
however, that, the Borrower and the Agent shall be entitled to continue to deal
solely and directly with such Lender in connection with the interests so
assigned and delegated to an Assignee Lender until:
(c) written notice of such assignment and delegation,
together with payment instructions, addresses and related information
with respect to such Assignee Lender, shall have been given to the
Borrower and the Agent by such Lender and such Assignee Lender;
(d) such Assignee Lender shall have executed and
delivered to the Borrower and the Agent a Lender Assignment Agreement,
accepted by the Agent; and
(e) the processing fees described below shall have been
paid.
From and after the date that the Agent accepts such Lender Assignment
Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to
have become a party hereto and, to the extent that rights and obligations
hereunder have been assigned and delegated to such Assignee Lender in
connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (y)
the Assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the other
Loan Documents. Within five Business Days after its receipt of notice that the
Agent has received an executed Lender Assignment Agreement, the Borrower shall
execute and deliver to the Agent (for delivery to the relevant Assignee Lender)
a new Note evidencing such Assignee Lender's assigned Loans and Commitment and,
if the assignor Lender has retained Loans and a Commitment hereunder, a
replacement Note in the principal amount of the Loans and Commitment retained
by the assignor Lender hereunder (such Note to be in exchange for, but not in
payment of, that Note then held by such assignor Lender). Each such Note shall
be dated the date of the predecessor Note. The
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assignor Lender shall mark the predecessor Note "exchanged" and deliver it to
the Borrower. Accrued interest on that part of the predecessor Note evidenced
by the new Note, and accrued fees, shall be paid as provided in the Lender
Assignment Agreement. Accrued interest on that part of the predecessor Note
evidenced by the replacement Note shall be paid to the assignor Lender.
Accrued interest and accrued fees shall be paid at the same time or times
provided in the predecessor Note and in this Agreement. Such assignor Lender
or such Assignee Lender must also pay a processing fee to the Agent upon
delivery of any Lender Assignment Agreement in the amount of $3,000. Any
attempted assignment and delegation not made in accordance with this Section
10.11.1 shall be null and void.
SECTION 10.11.2. Participations. Any Lender may at any time sell to
one or more commercial banks or other Persons (each of such commercial banks
and other Persons being herein called a "Participant") participating interests
in any of the Loans, its Commitment, or other interests of such Lender
hereunder; provided, however, that:
(a) no participation contemplated in this Section 10.11
shall relieve such Lender from its Commitment or its other obligations
hereunder or under any other Loan Document;
(b) such Lender shall remain solely responsible for the
performance of its Commitment and such other obligations;
(c) the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and each of the other Loan
Documents;
(d) no Participant, unless such Participant is an
Affiliate of such Lender or is itself a Lender, shall be entitled to
require such Lender to take or refrain from taking any action
hereunder or under any other Loan Document, except that such Lender
may agree with any Participant that such Lender will not, without such
Participant's consent, take any actions of the type described in
clause (b) or (c) of Section 10.1; and
(e) the Borrower shall not be required to pay any amount
under Section 4.6 that is greater than the amount which it would have
been required to pay had no participating interest been sold.
The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a
Lender.
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SECTION 10.12. Other Transactions. Nothing contained herein shall
preclude the Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
SECTION 10.13. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR
OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
ILLINOIS. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE
TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY
ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.14. Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE
BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
THORN APPLE VALLEY, INC.
By_________________________________
Title:
Address: _________________________
_________________________
Facsimile No.: ___________________
Attention: ________________________
________________________
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., acting through its
U.S. branches and agencies, including
initially its New York Branch, as Agent
By_________________________________
Title:
By_________________________________
Title:
Address: 245 Park Avenue
New York, New York 10167
Attention: _______________________
_______________________
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<PAGE> 66
PERCENTAGE LENDERS
---------- -------
31.25% COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A.,
New York Branch
By________________________________
Title:
By_________________________________
Title:
Domestic
Office: 245 Park Avenue
New York, New York 10167
Facsimile No.: (212) 916-7930
Attention for
Borrowing and
Payment Notices: Corporate Services Dept.
Attn: Chandra Rambarran
Attention for
all other
Notices: Rabobank Nederland
300 S. Wacker Dr.
Suite 3500
Chicago, IL 60606
Attn: M. Butz
LIBOR
Office: 245 Park Avenue
New York, New York 10167
Facsimile No.: (212) 916-7930
Attention for
Borrowing and
Payment Notices: Corporate Services Dept.
Attn: Chandra Rambarran
61
<PAGE> 67
25.0% OLD KENT BANK & TRUST CO.
By________________________________
Title:
Domestic
Office: __________________________
__________________________
Facsimile No.: ___________________
Attention for
Borrowing and
Payment Notices: _________________
Attention for
all other
Notices: _________________________
LIBOR
Office: _________________________
_________________________
Facsimile No.: ___________________
Attention for
Borrowing and
Payment Notices: ________________
________________
62
<PAGE> 68
25.0% NATIONAL CITY BANK
By________________________________
Title:
Domestic
Office: 1900 E. Ninth St.
Cleveland, OH 44114
Facsimile No.: (216) 575-9396
Attention for
Borrowing and
Payment Notices: Wendy Pollarine
Attention for
all other
Notices: Marybeth S. Howe
LIBOR
Office: 1900 E. Ninth St.
Cleveland, OH 44114
Facsimile No.: (216) 575-3207
Attention for
Borrowing and
Payment Notices: Wendy Pollarine
63
<PAGE> 69
18.75% HARRIS TRUST AND SAVINGS BANK
By________________________________
Title: Vice President
Domestic
Office: 111 West Monroe Street
Chicago, IL 60690
Facsimile No.: (312) 765-8095
Attention for
Borrowing and
Payment Notices: Ylanda Wilhite
Jerry Karl
Attention for
all other
Notices: Edward L. Cooper, III
LIBOR
Office: 111 West Monroe
Chicago, IL 60690
Facsimile No.: (312) 765-8095
Attention for
Borrowing and
Payment Notices: Ylanda Wilhite
Jerry Karl
____
100%
====
64
<PAGE> 1
EXHIBIT 10(t)
THORN APPLE VALLEY, INC.
NOTE AGREEMENT
DATED AS OF OCTOBER 1, 1994
$8,000,000 PRINCIPAL AMOUNT
8.42% SENIOR NOTES
DUE OCTOBER 1, 2003
<PAGE> 2
TABLE OF CONTENTS
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Section 1. DESCRIPTION OF NOTES AND COMMITMENT
1.1 Description of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Commitment; Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. PREPAYMENT OF NOTES
2.1 Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Optional and Other Prepayments . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Notice of Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Surrender of Notes on Prepayment or
Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Direct Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Allocation of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . . . . 4
2.8 Interest Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. REPRESENTATIONS
3.1 Representations of the Company . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Representations of the Purchaser . . . . . . . . . . . . . . . . . . . . . 11
Section 4. CLOSING CONDITIONS
4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Legality of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6 Private Placement Number . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Accountant's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Receipt of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.10 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. INTERPRETATION OF AGREEMENT
5.1 Certain Terms Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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5.3 Valuation Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Direct or Indirect Actions . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6. AFFIRMATIVE COVENANTS
6.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Taxes, Claims for Labor and Materials . . . . . . . . . . . . . . . . . . 23
6.4 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Maintenance of Records . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Financial Information and Reports . . . . . . . . . . . . . . . . . . . . 23
6.7 Inspection of Properties and Records . . . . . . . . . . . . . . . . . . . 26
6.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Acquisition of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.11 Required Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.12 NAIC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7. NEGATIVE COVENANTS
7.1 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Fixed Charge Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.6 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Sale and Lease-Back Transaction . . . . . . . . . . . . . . . . . . . . . . 33
7.9 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Nature of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3 Annulment of Acceleration of Notes . . . . . . . . . . . . . . . . . . . . 35
8.4 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Conduct No Waiver; Collection Expenses . . . . . . . . . . . . . . . . . . 36
8.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.7 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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Section 9. AMENDMENTS, WAIVERS AND CONSENTS
9.1 Matters Subject to Modification . . . . . . . . . . . . . . . . . . . . . . 37
9.2 Solicitation of Holders of Notes . . . . . . . . . . . . . . . . . . . . . 37
9.3 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE
AND REPLACEMENT
10.1 Form of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Note Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Issuance of New Notes upon Exchange
or Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Replacement of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11. MISCELLANEOUS
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.3 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.5 Law Governing; Consent to Jurisdiction . . . . . . . . . . . . . . . . . . 40
11.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.8 Reliance on and Survival of Provisions . . . . . . . . . . . . . . . . . . 40
11.9 Integration and Severability . . . . . . . . . . . . . . . . . . . . . . . 40
Annex I: Subsidiaries
Annex II: Existing Indebtedness
Annex III: Description of Liens
Annex IV: Existing Investments
Annex V: Material Litigation
Annex VI: Materials Provided to Purchaser
Annex VII: Environmental Disclosure
Exhibit A: Form of 8.42% Senior Note, Due October 1, 2003
Exhibit B: Legal Opinions
</TABLE>
(iii)
<PAGE> 5
THORN APPLE VALLEY, INC.
NOTE AGREEMENT
Dated as of October 1, 1994
To the Purchaser Named
in Schedule I Hereto
Ladies and Gentlemen:
THORN APPLE VALLEY, INC., a Michigan corporation (the "Company"),
agrees with you as follows:
Section 1. DESCRIPTION OF NOTES AND COMMITMENT
1.1 Description of Notes. The Company has authorized the issuance
and sale of $8,000,000 aggregate principal amount of its Senior Notes, to be
dated the date of issuance thereof, to bear interest from such date at the rate
of 8.42% per annum prior to maturity, payable semi-annually on the first day of
April and October of each year, commencing April 1, 1995, and at maturity, to
bear interest on overdue principal (including any overdue required or optional
prepayment), premium, if any, and (to the extent legally enforceable) on any
overdue installment of interest at the greater of (i) the rate of interest
publicly announced from time to time by Harris Trust and Savings Bank (or its
successors or assigns) as its prime rate plus two percent (2%) or (ii) 10.42%
per annum, to be expressed to mature on October 1, 2003 and to be substantially
in the form attached as Exhibit A. The term "Notes" as used herein shall
include each Note delivered pursuant to this Note Agreement (the "Agreement")
and each Note delivered in substitution or exchange therefor and, where
applicable, shall include the singular number as well as the plural. Any
reference to you in this Agreement shall in all instances be deemed to include
any nominee of yours or any separate account on whose behalf you are purchasing
Notes. You are sometimes referred to herein as the "Purchaser."
1.2 Commitment; Closing Date. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to you, and you agree to purchase
from the Company, Notes in the aggregate principal amount set forth opposite
your name in the attached Schedule I at the price set forth in Section I at a
price of 100% of the principal amount thereof.
Delivery of and payment for the Notes shall be made at the offices of
Gardner, Carton & Douglas, 321 North Clark Street, Quaker Tower, Chicago,
Illinois 60610, at 9:00 a.m., Chicago Time, on October 21, 1994, or at such
later time or on such later date, as may be mutually agreed upon by the Company
and the Purchaser (the "Closing Date"). The Notes will be delivered to
<PAGE> 6
you in fully registered form, issued in your name or in the name of your
nominee. Delivery of the Notes to you on the Closing Date shall be against
payment of the purchase price thereof in federal funds or other funds in U.S.
dollars immediately available at the principal office of [First of America
Bank, 400 South Main, Royal Oak, Michigan 48067, A.B.A. No. 0720-0091-5,] for
deposit in the Company's Account No. 301-135497. If on the Closing Date the
Company shall fail to tender the Notes to you, you shall be relieved of all
remaining obligations under this Agreement. Nothing in the preceding sentence
shall relieve the Company of any liability occasioned by such failure to
deliver the Notes.
Section 2. PREPAYMENT OF NOTES
2.1 Required Prepayments. Except as set forth in Section 2.2(b)
below, no prepayments of the Notes are required.
2.2 Optional and Other Prepayments. (a) Upon notice as provided
in Section 2.3, the Company may prepay the Notes, in whole or in part, at any
time, in an amount of not less than $1,000,000 or in integral multiples of
$100,000 in excess thereof (or the remaining principal amount of the Notes) at
a price of (i) 100% of the principal amount to be prepaid, plus interest
accrued thereon to the date of prepayment, if the Reinvestment Yield, on the
applicable Determination Date, equals or exceeds the interest rate payable on
or in respect of the Notes, or (ii) 100% of the principal amount to be prepaid,
plus interest accrued thereon to the date of prepayment, plus a premium, if the
Reinvestment Yield, on such Determination Date, is less than the interest rate
payable on or in respect of the Notes. The premium shall equal (x) the
aggregate present value of the amount of principal being repaid and the present
value of the amount of interest (exclusive of interest accrued to the date of
prepayment) which would have been payable in respect of such principal absent
such prepayment, determined by discounting (semi-annually on the basis of a
360-day year composed of twelve 30-day months) each such amount utilizing an
interest factor equal to the Reinvestment Yield, less (y) the principal amount
to be prepaid.
(b) In the event that the Company shall have knowledge of any
proposed Change of Control, the Company will give written notice (the "Proposed
Change of Control Notice") of such fact to each of the Noteholders. The
Proposed Change of Control Notice shall be delivered promptly upon receipt of
such knowledge by the Company and shall describe the facts and circumstances of
such proposed Change of Control in reasonable detail. In the event that the
Change of Control described in the Proposed Change of Control Notice or any
other Change of Control shall occur, the Company will give written notice (the
"Company Notice") of such fact to the Noteholders. The Company Notice shall be
delivered promptly and in any event no later than five Business Days following
the occurrence of any Change of Control. The Company Notice shall (i) describe
the facts and circumstances of such Change of Control in reasonable detail,
(ii) make reference to this Section 2.2(b) and the right of the Noteholders to
require payment on the terms and conditions provided for in this Section
2.2(b), (iii) offer in writing to prepay the outstanding Notes at a price of
100% of the principal amount to be prepaid, plus interest accrued thereon to
the date of prepayment and (iv) specify a date for such prepayment, which
prepayment date shall be not earlier than 10 days or later than 20 days after
the expiration of the 15-day
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<PAGE> 7
period provided in the immediately succeeding sentence (the "Change of Control
Prepayment Date"). Each Noteholder shall have the right to reject such offer
and not require payment of the Notes held by such Noteholder by written notice
to the Company (the "Noteholder Notice") given within 15 days following receipt
of the Company Notice. Failure by any Noteholder to deliver the notice
described in the preceding sentence shall be deemed to constitute acceptance of
the Company's offer to prepay. The Company shall, on each Change of Control
Prepayment Date, make payment on all Notes held by Noteholders who have
accepted such offer of prepayment at a price of 100% of the principal amount to
be prepaid, plus interest accrued thereon to the date of prepayment.
Without limiting any of the foregoing, notwithstanding any failure on
the part of the Company to give the Company Notice herein required as a result
of the occurrence of a Change of Control, each Noteholder shall have the right
to require the Company to prepay, and the Company will prepay, such
Noteholder's Notes at any time after such Noteholder has actual knowledge of
any Change of Control. Notice of any required repayment pursuant to this
Section 2.2(b) shall be delivered by any Noteholder which was entitled to, but
did not receive, such Company Notice to the Company within sixty days after
such Noteholder has actual knowledge of such Change of Control. On the date
(the "Delayed Prepayment Date") designated in such Noteholder's Notice (which
shall be not earlier than 20 days nor later than 45 days after the date of such
Noteholder's Notice), the Company shall prepay in full all Notes held by such
Noteholder at a price of 100% of the principal amount prepaid, plus interest
accrued thereon to the date of prepayment. If any Noteholder gives any notice
pursuant to this paragraph, the Company shall give a Company Notice within one
Business Day of receipt of such notice and identify the Delayed Prepayment Date
to all other Noteholders and each of such other Noteholders shall then and
thereupon have the rights with respect to the prepayment of its Notes as set
forth in this Section 2.2(b); provided that the date for prepayment of such
other Noteholder's Notes shall be the Delayed Prepayment Date.
(c) Any optional prepayment pursuant to Section 2.2(a) or Section
2.2(b) of less than all of the Notes outstanding shall be applied, to reduce
payment at maturity.
(d) Except as provided in this Section 2.2, the Notes shall not be
prepayable in whole or in part.
2.3 Notice of Prepayments. The Company shall give notice of any
optional prepayment of the Notes pursuant to Section 2.2(a) to each holder of
the Notes not less than 30 days nor more than 60 days before the date fixed for
prepayment, specifying (i) such date, (ii) the principal amount of the holder's
Notes to be prepaid on such date, and an estimate of the premium, if any,
payable with respect thereto, (iii) the Determination Date as of which the
premium, if any, will be calculated and (iv) the accrued interest applicable to
the prepayment. Notice of prepayment having been so given, the aggregate
principal amount of the Notes specified in such notice, together with the
premium, if any, and accrued interest thereon shall become due and payable on
the prepayment date.
-3-
<PAGE> 8
The Company also shall give notice to each holder of the Notes by
telecopy, telegram, telex or other same-day written communication (and the
Company shall solicit telephonic confirmation of receipt of such notice), as
soon as practicable but in any event not later than the Business Day prior to
the prepayment date, of the premium, if any, applicable to such prepayment and
the details of the calculations used to determine the amount of such premium.
2.4 Surrender of Notes on Prepayment or Exchange. Subject to
Section 2.5, upon any partial prepayment of a Note pursuant to this Section 2
or partial exchange of a Note pursuant to Section 10.3, such Note may, at the
option of the holder thereof, (i) be surrendered to the Company pursuant to
Section 10.3 in exchange for a new Note equal to the principal amount remaining
unpaid on the surrendered Note, or (ii) be made available to the Company for
notation thereon of the portion of the principal so prepaid or exchanged. In
case the entire principal amount of any Note is prepaid or exchanged, such Note
shall, following such prepayment or exchange, be surrendered to the Company for
cancellation and shall not be reissued, and no Note shall be issued in lieu of
such Note.
2.5 Direct Payment. Notwithstanding any other provision contained
in the Notes or this Agreement, the Company will pay all sums by 11:00 a.m.
Central Time, becoming due on each Note held by you or any subsequent
Institutional Holder by wire transfer of immediately available federal funds to
such account as you or such subsequent Institutional Holder have designated in
Schedule I, or as you or such subsequent Institutional Holder may otherwise
designate by notice to the Company, in each case without presentment and
without notations being made thereon, except that any such Note so paid or
prepaid in full shall, after payment thereof, be surrendered to the Company for
cancellation. Any wire transfer shall identify such payment in the manner set
forth in Schedule I and shall identify the payment as principal, premium, if
any, and/or interest. You and any subsequent Institutional Holder of a Note to
which this Section 2.5 applies agree that, before selling or otherwise
transferring any such Note, you or it will make a notation thereon of the
aggregate amount of all payments of principal theretofore made and of the date
to which interest has been paid.
2.6 Allocation of Payments. Except in the case of a prepayment
pursuant to Section 2.2(b), if less than the entire principal amount of all the
Notes outstanding is to be paid, the Company will prorate the aggregate
principal amount to be paid among the outstanding Notes in proportion to the
unpaid principal.
2.7 Payments Due on Saturdays, Sundays and Holidays. In any case
where the date of any required prepayment of the Notes or any scheduled
interest payment date on the Notes or the date fixed for any other payment of
any Note or exchange of any Note is not a Business Day, then such payment,
prepayment or exchange need not be made on such scheduled date but may be made
on the next succeeding Business Day (with interest accrued to the actual
payment date), with the same force and effect as if made on the due date.
2.8 Interest Adjustment. Anything in this Agreement or the Notes
to the contrary notwithstanding, in no event shall the Noteholders be entitled
to charge or receive interest in excess of twenty-five percent (25%) simple
interest per annum. For purposes of this provision,
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<PAGE> 9
interest shall include any amount, charge, fee, prepayment expense, bonus,
points or consideration that is deemed to be interest for purposes of such
applicable law.
Section 3. REPRESENTATIONS
3.1 Representations of the Company. As an inducement to, and as
part of the consideration for, your purchase of the Notes pursuant to this
Agreement, the Company represents and warrants to you as follows:
(a) Corporate Organization and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan, has all requisite corporate power and authority
to own and operate its properties, to carry on its business as now conducted
and as presently proposed to be conducted, to enter into and perform the
Agreement and to issue and sell the Notes as contemplated in the Agreement.
(b) Qualification to Do Business. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction where the nature of the business transacted by it
or the character of its properties owned or leased makes such qualification or
licensing necessary, except where the failure to be so licensed or qualified or
in good standing would not materially and adversely affect the condition,
financial or otherwise, of the Company and its Subsidiaries taken as a whole.
(c) Subsidiaries. The Company has no Subsidiaries, as defined in
Section 5.1, except those listed in Annex I, which correctly sets forth the
jurisdiction of incorporation and the percentage of the outstanding Voting
Stock of each Subsidiary which is owned, of record or beneficially, by the
Company and/or one or more Subsidiaries. Each Subsidiary has been duly
organized, is validly existing and is in good standing under the laws of its
jurisdiction of incorporation and is duly licensed or qualified and in good
standing as a foreign corporation in each other jurisdiction where the nature
of the business transacted by it or the character of its properties owned or
leased makes such qualification or licensing necessary, except where the
failure to be so licensed or qualified or in good standing would not materially
and adversely affect the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole. A list of Non-Operating Subsidiaries and a
list of those jurisdictions wherein each Subsidiary is qualified to do business
is set forth in Annex I. Each Subsidiary has full corporate power and
authority to own and operate its properties and to carry on its business as now
conducted and as presently proposed to be conducted. The Company and each
Subsidiary have good and marketable title to all of the shares they purport to
own of the capital stock of each Subsidiary, free and clear in each case of any
lien or encumbrance, and all such shares have been duly issued and are fully
paid and nonassessable. The Non-Operating Subsidiaries have no assets and no
operations of a material nature.
(d) Financial Statements. The consolidated balance sheets of the
Company and its Subsidiaries as of May 27, 1994, May 28, 1993, May 29, 1992 and
May 31, 1991, and the related consolidated statements of income, shareholders'
equity and cash flows for the years ended
-5-
<PAGE> 10
May 27, 1994, May 28, 1993, May 29, 1992 and May 31, 1991, accompanied by the
report and unqualified opinion of Coopers & Lybrand, independent certified
public accountants, copies of which have heretofore been delivered to you were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise noted
therein) and present fairly the consolidated financial condition and
consolidated results of operations and cash flows of the Company and its
Subsidiaries for and as of the end of each of such years.
(e) No Contingent Liabilities or Adverse Changes. Neither the
Company nor any of its Subsidiaries had, as of the respective dates of the
financial statements described in the foregoing paragraph (d) of this Section
3.1, any contingent liabilities which are material to the Company and its
Subsidiaries taken as a whole other than as indicated on the financial
statements described in the foregoing paragraph (d) of this Section 3.1, and
since May 27, 1994, there have been no material adverse changes in the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole.
(f) No Pending Litigation or Proceedings. Except as set forth in
Annex V hereto, there are no actions, suits or proceedings pending or
threatened against or affecting the Company or any of its Subsidiaries, at law
or in equity or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined against the Company or any
Subsidiary, might result, either individually or in the aggregate, in any
material adverse change in the business, Properties, profits and prospects,
operations or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or on the Company's ability to perform its
obligations under this Agreement or the Notes.
(g) Compliance with Law. (i) Neither the Company nor any of its
Subsidiaries is: (x) in default with respect to any order, writ, injunction or
decree of any court to which it is a named party; or (y) in default under any
law, rule, regulation, approval, ordinance or order, relating to its or their
respective businesses, the sanctions and penalties resulting from which
defaults described in clauses (x) and (y), if applied individually or in the
aggregate, might have a material adverse effect on the business, Properties,
profits and prospects, operations, assets or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole, or on the Company's
ability to perform its obligations under this Agreement or the Notes.
(ii) Neither the Company nor any Subsidiary nor any
Affiliate of the Company is an entity defined as a "designated national" within
the meaning of the Foreign Assets Control Regulations, 31 C.F.R. Chapter V, or
for any other reason, subject to any restriction or prohibition under, or is in
violation in any material respect of, any Federal statute or Presidential
Executive Order, or any rules or regulations of any department, agency or
administrative body promulgated under any such statute or Order, concerning
trade or other relations with any foreign country or any citizen or national
thereof or the ownership or operation of any property.
(h) Pension Reform Act of 1974. The Internal Revenue Service has
issued a determination that each "employee pension benefit plan," as defined in
Section 3 of the
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<PAGE> 11
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Plan"), established, maintained or contributed to by the Company or any
Subsidiary has been qualified under Section 401(a) and related provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and that each
related trust or custodial account is exempt from taxation under Section 501(a)
of the Code. All Plans of the Company or any Subsidiary comply in all material
respects with ERISA and other applicable laws. There exist with respect to the
Company or any Subsidiary no "multi-employer plans," as defined in the
Multi-employer Pension Plan Amendments Act of 1980, for which a material
withdrawal or termination liability may be incurred. There exist with respect
to all Plans or trusts established or maintained by the Company or any
Subsidiary: (i) no material accumulated funding deficiency within the meaning
of ERISA; (ii) no termination of any Plan or trust which would result in any
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or any
"reportable event," as that term is defined in ERISA, which is likely to
constitute grounds for termination of any Plan or trust by the PBGC; and (iii)
no "prohibited transaction," as that term is defined in ERISA, which is likely
to subject any Plan, trust or party dealing with any such Plan or trust to any
material tax or penalty on prohibited transactions imposed by Section 4975 of
the Code. The present value of vested benefits under Plans of the Company and
its Subsidiaries does not materially exceed the value of Plan assets. The
Company and its Subsidiaries are in full compliance with all filing
requirements of ERISA.
(i) Title to Properties. The Company and each Subsidiary has (i)
good title in fee simple or its equivalent under applicable law to all the real
property owned by it which is material to the business, Properties, profits and
prospects, operations or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole and (ii) good title to all other Property
owned by it which is material to the business, Properties, profits and
prospects, operations or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole, in each case free from all Liens except (x)
those securing Indebtedness of the Company or a Subsidiary, which are listed in
the attached Annex II and Annex III and (y) other Liens that would be permitted
pursuant to Section 7.4.
(j) Leases. The Company and each Subsidiary enjoy peaceful and
undisturbed possession under all leases under which the Company or such
Subsidiary is a lessee or is operating which are material to the business,
Properties, profits and prospects, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole. None of such
leases contains any provision which might materially and adversely affect the
operation or use of the property so leased. All of such leases are valid and
subsisting and neither the Company nor any Subsidiary is in default with
respect to any leases which are material, individually or in the aggregate, to
the business, Properties, profits and prospects, operations or condition,
financial or otherwise, of the Company and its Subsidiaries taken as a whole or
on the Company's ability to perform its obligations under this Agreement or the
Notes.
(k) Franchises, Patents, Trademarks and Other Rights. The Company
and each Subsidiary have all franchises, permits, approvals, validations,
licenses and other authority, necessary to carry on their businesses as now
being conducted and as proposed to be conducted, and none are in default under
any of such franchises, permits, approvals, validations, licenses or
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<PAGE> 12
other authority which are, individually or in the aggregate, material to their
businesses, Properties, profits and prospects, operations or condition,
financial or otherwise or on the Company's ability to perform its obligations
under this Agreement or the Notes. The Company and each Subsidiary own or
possess all patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect to the foregoing necessary for the present
conduct of their businesses, without any known conflict with the rights of
others which, if determined against the Company or any Subsidiary, might
result, either individually or in the aggregate, in any material adverse change
in their business, Properties, profits and prospects, operations or condition,
financial or otherwise of the Company and its Subsidiaries taken as a whole or
on the Company's ability to perform its obligations under this Agreement or the
Notes.
(l) Status of Notes and Sale of Notes. This Agreement and the
Notes have been duly authorized on the part of the Company and will constitute,
when executed and delivered, the legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except to the extent that
enforcement of this Agreement and the Notes may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or by equitable principles, regardless of whether enforcement is sought in
equity or at law. The sale of the Notes and compliance by the Company with all
of the provisions of this Agreement and of the Notes (i) are within the
corporate powers of the Company, (ii) have been duly authorized by proper
corporate action and (iii) are legal, will not violate any provisions of any
law or regulation or order of any court, governmental authority or agency and
will not result in any breach of any of the provisions of, or constitute a
default under, or result in the creation of any Lien on any property of the
Company or any Subsidiary under the provisions of, any charter document,
by-law, loan agreement or other material agreement or instrument to which the
Company or any Subsidiary is a party or by which any of them or their property
may be bound. With respect solely to matters of federal, state and local
securities law, the Company has relied in making its representations in this
paragraph (l) in part upon representations of the Purchaser in this Agreement.
(m) No Defaults; Outstanding Indebtedness. No event has occurred
and no condition exists which, upon the execution of this Agreement or the
issuance of the Notes, would constitute an Event of Default, or with the lapse
of time or the giving of notice or both would become an Event of Default, under
this Agreement. Neither the Company nor any Subsidiary is in default under any
charter document, by-law, loan agreement or other material agreement or
material instrument to which it is a party or by which it or its property may
be bound, nor has the Company or any Subsidiary obtained any waivers with
respect to any such defaults under any loan agreements or other agreements or
instruments. A summary of all of the outstanding Indebtedness, the current
outstanding principal amount of which exceeds $100,000 of the Company and its
Subsidiaries, is attached hereto as Annex II.
(n) Governmental Consent. Neither the nature of the Company or
any of its Subsidiaries, their respective businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstances in connection with the offer, issue, sale or
delivery of the Notes is such as to require a consent, approval or
authorization
-8-
<PAGE> 13
of, or withholding of objection on the part of, or filing, registration or
qualification with, any governmental authority on the part of the Company in
connection with the execution and delivery of this Agreement or the offer,
issue, sale or delivery of the Notes. With respect to solely matters of
federal, state and local securities law, the Company has relied in making its
representations in this paragraph (n) in part upon representations of the
Purchaser in this Agreement.
(o) Taxes. All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have been filed, and all taxes, assessments,
fees and other governmental charges upon the Company or any Subsidiary, or upon
any of their respective properties, income or franchises, which are due and
payable, have been paid timely or within appropriate extension periods or are
being contested in good faith by appropriate proceedings, except for failures
to file for or pay certain state or local sales taxes and where such failures
would not, individually or in the aggregate, have a material adverse effect on
the Company's business, Properties, or condition, financial or otherwise. The
Company does not know of any proposed additional tax assessment against it or
any Subsidiary for which adequate reserves have not been provided for on its
books. The federal income tax liability of the Company and its Subsidiaries
has been finally determined by the Internal Revenue Service and satisfied for
all taxable years up to and including the taxable year ended May 31, 1991 and
no controversy in respect of additional taxes due since such date is pending or
to the Company's knowledge threatened, except as described on Schedule 3.1P(o)
attached hereto. The provisions for taxes on the books of the Company and each
Subsidiary are, in the opinion of the Company, adequate for all open years and
for the current fiscal period.
(p) Status under Certain Statutes. Neither the Company nor any
Subsidiary is: (i) a "public utility company" or a "holding company," or an
"affiliate" or a "subsidiary company" of a "holding company," or an "affiliate"
of such a "subsidiary company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended, or (ii) a "public utility" as defined
in the Federal Power Act, as amended, or (iii) required to be registered as an
"investment company" or an "affiliated person" thereof or an "affiliated
person" of any such "affiliated person," as such terms are defined in the
Investment Company Act of 1940, as amended.
(q) Private Offering. Neither National City Investments
Corporation (the only Person authorized or employed by the Company as agent,
broker, dealer or otherwise in connection with the offering of the Notes or any
similar security of the Company) based upon a letter dated October 19, 1994
from National City Investments Corporation to the Company nor the Company has
offered any of the Notes or any similar security of the Company for sale to, or
solicited offers to buy any thereof from, or otherwise approached or negotiated
with respect thereto with, any prospective purchaser, other than the Purchaser,
who is an "accredited investor" within the meaning of Regulation D under the
Securities Act, and who was offered all or a portion of the Notes at private
sale for investment. Neither the Company nor anyone acting on its
authorization will offer the Notes or any part thereof or any similar
securities for issue or sale to, or solicit any offer to acquire any of the
same from, anyone so as to bring the issuance and sale of the Notes within the
provisions of Section 5 of the Securities Act.
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<PAGE> 14
(r) Effect of Other Instruments. Neither the Company nor any
Subsidiary is bound by any agreement, instrument, decree, order or subject to
any charter or other corporate restriction which materially and adversely
affects the business, Properties, profits and prospects, operations, or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the Company's ability to perform its obligations under this
Agreement or the Notes.
(s) Use of Proceeds. The Company presently intends to apply the
proceeds from the sale of the Notes for general working capital purposes. None
of the transactions contemplated in this Agreement to be performed by the
Company (including, without limitation thereof, the use of the proceeds from
the sale of the Notes) will violate or result in a violation of Section 7 of
the Exchange Act, or any regulations issued pursuant thereto, including,
without limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System (12 C.F.R., Chapter II). None of the proceeds from the
sale of the Notes will be used to purchase or carry or refinance any borrowing
the proceeds of which were used to purchase or carry any "margin stock" or
"margin security" in violation of Regulations G, T, U or X.
(t) Condition of Property. All of the facilities of the Company
and each of its Subsidiaries which are material to the business, Properties,
profits and prospects, operations or condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole are in sound operating condition
and repair in all material respects except for such facilities being repaired
in the ordinary course of business or facilities which individually or in the
aggregate are not material to the business, Properties, profits and prospects,
operations, or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or on the Company's ability to perform its
obligations under this Agreement or the Notes.
(u) Books and Records. The Company and each of its Subsidiaries
(i) maintain books, records and accounts in reasonable detail which accurately
and fairly reflect their respective transactions and business affairs, and (ii)
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are executed in accordance with
management's general or specific authorization and to permit preparation of
financial statements in accordance with generally accepted accounting
principles.
(v) Full Disclosure. Neither the financial statements referred to
in paragraph (d) of this Section 3.1, nor this Agreement, nor any other
document listed in Annex VI hereto furnished by the Company to you in
connection with the negotiation of the sale of the Notes, taken together,
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances under which they were made. There is no fact known,
or which, with reasonable diligence would be known, by the Company which the
Company has not disclosed to you in writing which has a material adverse effect
on or, so far as the Company can now foresee, will have a material adverse
effect on the business, Property, profits and prospects, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the ability of the Company to perform its obligations under this
Agreement and the Notes.
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<PAGE> 15
(w) Environmental Compliance. Except as disclosed in Annex VII
hereto, the Company and each Subsidiary (i) is in compliance in all material
respects with all applicable environmental, transportation, health and safety
statutes and regulations, including, without limitation, regulations
promulgated under the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section Section 6901 et seq. and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et. seq.,
and (ii) has not acquired, incurred or assumed, directly or indirectly, any
material contingent liability in connection with the release or storage of any
toxic or hazardous waste or substance into the environment. Except as
discussed on Annex VII hereto, the Company has not incurred any material
liability pursuant to any environmental indemnity agreements to which it is a
party or with respect to which it has entered into a Guaranty. Except as
discussed in Annex VII hereto, the Company and its Subsidiaries have not
acquired, incurred or assumed, directly or indirectly, any material contingent
liability in connection with a release or other discharge of any hazardous,
toxic or waste material, including petroleum, on, in, under or into the
environment surrounding any property owned, used or leased by any of them.
3.2 Representations of the Purchaser. You represent, and in
entering into this Agreement the Company understands, that (i) you are an
Institutional Holder and an "accredited investor" within the meaning of
Regulation D under the Securities Act, (ii) you are acquiring Notes for the
purpose of investment for your own account and not with a view to the
distribution thereof, and (iii) you have no present intention of selling,
negotiating or otherwise disposing of the Notes; provided that the disposition
of your property shall at all times be and remain within your control, subject,
however, to compliance with Federal, state and local securities laws. You
acknowledge that the Notes have not been registered under the Securities Act or
the laws of any state and you understand that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act
or the laws of any state, if applicable, or an exemption from such registration
is available. You have been advised that the Company does not contemplate
registering, and is not legally required to register, the Notes under the
Securities Act.
To the knowledge of the Purchaser, the acquisition of the Notes by the
Purchaser shall constitute a legal investment as of the Closing Date under the
laws and regulations of the State of Illinois (without any resort to any
"basket" or "leeway" provision which permits the making of an investment
without restriction as to the character of the investment being made) and such
acquisition shall not subject the Purchaser to any penalty or other onerous
condition in or pursuant to any such law or regulation.
You further represent that either: (i) no part of the funds to be used
by you to purchase the Notes will constitute assets allocated to any separate
account maintained by you; or (ii) no part of the funds to be used by you to
purchase the Notes will constitute assets allocated to any separate account
maintained by you such that the application of such funds will constitute a
prohibited transaction under Section 406 of ERISA; or (iii) all or a part of
such funds will constitute assets of one or more separate accounts maintained
by you, and you have disclosed to the Company the names of such employee
benefit plans whose assets in such separate account or accounts exceed 10% of
the total assets or are expected to exceed 10% of the total assets of such
account or accounts as of the date of such purchase and the Company has advised
you in writing that the
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<PAGE> 16
Company is not a party-in-interest nor are the Notes employer securities with
respect to the particular employee benefit plans disclosed to the Company by
you as aforesaid (for the purpose of this clause (iii), all employee benefit
plans maintained by the same employer or employee organization are deemed to be
a single plan). As used herein, the terms "separate account,"
"party-in-interest," "employer securities," and "employee benefit plan" have
the meanings assigned to them in ERISA.
Section 4. CLOSING CONDITIONS
Your obligation to purchase the Notes on the Closing Date and the
Company's obligation to sell the Notes shall be subject to the performance by
the Company and the Purchaser, respectively, of their agreements hereunder,
which are to be performed at or prior to the time of delivery of the Notes, and
to the following conditions to be satisfied on or before the Closing Date:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement or otherwise made in
writing in connection herewith shall be true and correct in all material
respects on or as of the Closing Date and the Company shall have delivered to
you a certificate to such effect, dated the Closing Date and executed by the
President or the chief financial officer of the Company based upon such
officer's respective knowledge, after due inquiry.
4.2 Legal Opinions. You shall have received from Gardner, Carton
& Douglas, who is acting as your special counsel in this transaction, from
Louis Glazier, Executive Vice President Finance and Administration and Chief
Financial Officer of the Company, and from Honigman, Miller, Schwartz and Cohn,
counsel for the Company, their respective opinions, dated as of the Closing
Date, in form and substance satisfactory to you and covering substantially the
matters set forth or provided in the attached Exhibit B.
4.3 Events of Default. No event shall have occurred and be
continuing on the Closing Date which would constitute an Event of Default, as
defined in Section 8.1, or with notice or lapse of time or both would become
such an Event of Default, and the Company shall have delivered to you a
certificate to such effect, dated the Closing Date and executed by the
President or the chief financial officer of the Company and based on such
officer's respective knowledge, after due inquiry.
4.4 Payment of Fees and Expenses. The Company shall have paid all
fees, expenses, costs and charges, including the fees and expenses of your
special counsel, incident to the proceedings in connection with, and
transactions contemplated by, this Agreement and the Notes.
4.5 Legality of Investment. Your acquisition of the Notes shall
constitute a legal investment as the Closing Date under the laws and
regulations of each jurisdiction to which you may be subject (without resort to
any "basket" or "leeway" provision which permits the making of an investment
without restriction as to the character of the particular investment being
made),
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and such acquisition shall not subject you to any penalty or other onerous
condition in or pursuant to any such law or regulation.
4.6 Private Placement Number. A private placement number shall
have been obtained from Standard & Poor's Corporation.
4.7 Accountant's Letter. You shall have received, dated the
Closing Date, a letter from the Company's independent certified public
accountants acknowledging that you may rely on their opinion accompanying the
audited financial statements referred to in Section 3.1(d).
4.8 Proceedings and Documents. All proceedings taken in
connection with the transactions contemplated by this Agreement, and all
documents necessary to the consummation of such transactions shall be
satisfactory in form and substance to you and your special counsel, and you and
your special counsel shall have received copies (executed or certified as may
be appropriate) of all legal documents or proceedings which you and they may
reasonably request. You shall have provided written wire instructions,
executed by an officer of the Company, directing the Purchasers as to the bank
in which the purchase price of the Notes shall be deposited.
4.9 Receipt of Proceeds. The Company shall have received the
purchase price of the Notes, specified in Section 1.2.
4.10 Waiver of Conditions. If on the Closing Date the Company
fails to tender to you the Notes to be issued on such date or if the conditions
specified in Sections 4.1 through 4.8 have not been fulfilled, you may
thereupon elect to be relieved of all further obligations under this Agreement.
Without limiting the foregoing, if the conditions specified in Sections 4.1
through 4.8 have not been fulfilled, you may waive compliance by the Company
with any such condition to such extent as you may in your sole discretion
determine. Nothing in this Section 4.10 shall operate to relieve the Company
of any of its obligations hereunder or to waive any of your rights against the
Company.
Section 5. INTERPRETATION OF AGREEMENT
5.1 Certain Terms Defined. The terms hereinafter set forth when
used in this Agreement shall have the following meanings:
Affiliate - Any Person (other than a Wholly-Owned Subsidiary) (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or any Subsidiary or (iii) 5% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 5% of the equity interest) of
which is beneficially owned or held by the Company or a Subsidiary. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and
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<PAGE> 18
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Agreement - As defined in Section 1.1.
Beneficial Ownership - As defined in Rule 13d-3 under the Exchange Act.
Business Day - A day other than a Saturday, Sunday or a legal holiday
or any other day on which banking institutions in Chicago, Illinois or Royal
Oak, Michigan are authorized by law to close.
Capitalized Lease - Any lease the obligation for Rentals with respect
to which, in accordance with generally accepted accounting principles, would be
required to be capitalized on a balance sheet of the lessee.
Change of Control - (a) The acquisition, through purchase or otherwise
(including the agreement to act in concert without more), by any Person (other
than Designated Persons) or group of Persons acting in concert (other than
Designated Persons), directly or indirectly, in one or more transactions, of
Beneficial Ownership or control of securities representing more than 50% of the
combined voting power of the Company's Voting Stock; or
(b) The distribution by the Company of cash, securities or other
properties (other than regular periodic cash dividends at a rate which is
substantially consistent with past practice, including with respect to
increases in dividends, and other than Common Stock or rights to acquire Common
Stock) to holders of capital stock (including by means of dividend,
reclassification, recapitalization or otherwise) which, together with all other
such distributions during the 365-day period preceding the date of such
distribution, has an aggregate fair market value in excess of an amount equal
to 30% of the fair market value of the Voting Stock of the Company outstanding
on the date immediately prior to such distribution.
A merger or consolidation pursuant to Section 7.6 with respect to
which the Voting Stock of the surviving corporation is more than 50% owned by a
Person or group of Persons acting in concert (other than Designated Persons)
who did not own such Voting Stock prior to such merger or consolidation shall
constitute a "Change of Control."
Closing Date - As defined in Section 1.2.
Code - As defined in Section 3.1(h).
Consolidated Fixed Charges - For any period, the sum of: (i)
Consolidated Interest Expense for such period and (ii) Rentals of the Company
and its Subsidiaries under all leases other than Capitalized Leases.
Consolidated Funded Debt - For any period, Funded Debt of the Company
and its Subsidiaries.
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<PAGE> 19
Consolidated Income Available for Fixed Charges - For any period, the
sum of (i) Consolidated Net Income for such period, plus (to the extent
deducted in determining Consolidated Net Income), (ii) all provisions for any
federal, state, or other income taxes made by the Company and its Subsidiaries
during such period and (iii) Consolidated Fixed Charges.
Consolidated Interest Expense - The interest expense (including
capitalized and noncapitalized interest, the interest component of Rentals
under Capitalized Leases and any expense associated with the termination of a
swap arrangement) of the Company and its Subsidiaries on a consolidated basis
for any period.
Consolidated Net Income - For any period, the gross revenues of the
Company and its Subsidiaries for such period less all expenses and other proper
charges (including taxes on income), determined on a consolidated basis after
eliminating earnings or losses attributable to outstanding Minority Interests,
but excluding in any event:
(a) any extraordinary or non-recurring items, any taxes on
excluded gains and any tax deductions or credits on account of any excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior to the
date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired in any
manner by the Company or any Subsidiary, realized by such corporation prior to
the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Company or a Subsidiary shall have consolidated or
which shall have merged into or with the Company or a Subsidiary prior to the
date of such consolidation or merger;
(f) net earnings of any business entity (other than a Subsidiary)
in which the Company or any Subsidiary has an ownership interest unless such
net earnings shall have actually been received by the Company or such
Subsidiary in the form of cash or other equivalent distributions;
(g) any portion of the net earnings of any Subsidiary which for
any reason is unavailable for payment of dividends to the Company or any other
Subsidiary;
(h) earnings or losses resulting from any reappraisal,
re-evaluation, write-up or write-down of assets;
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(i) any deferred or other credit representing any excess of the
equity in any Subsidiary at the date of acquisition thereof on or after the
Closing Date over the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any securities of the
Company or any Subsidiary; or
(k) any reversal of any contingency reserve, except to the extent
that provision for such contingency reserve shall have been made from income
arising during such period.
Consolidated Tangible Net Worth - The consolidated shareholders' equity
(including preferred stock other than preferred stock which would be
characterized as Indebtedness under generally accepted accounting principles
and excluding Minority Interests) of the Company and its Subsidiaries
determined in accordance with generally accepted accounting principles, less
all goodwill, trade names, trademarks, patents, organization expense,
unamortized debt discount and expense and other similar intangibles properly
classified as intangibles in accordance with generally accepted accounting
principles and incurred after December 10, 1993.
Consolidated Total Assets - The consolidated total assets of the
Company and its Subsidiaries determined in accordance with generally accepted
accounting principles.
Consolidated Total Capitalization - The sum of Consolidated Tangible
Net Worth and Consolidated Funded Debt.
Current Debt - All Indebtedness for borrowed money incurred under a
credit line or other facility providing for borrowings, the final maturity of
which Indebtedness is one year or less from the date of determination.
Default - Any event which, with the giving of notice or the passage of
time or both, would constitute an Event of Default.
Designated Persons - A "Designated Person" shall include:
(a) (i) Henry S. Dorfman, Marla Dorfman, Gayle Weiss, Carolyn
Dorfman and Joel Dorfman; (ii) the estates of the Persons set forth in clause
(i); and (iii) an inter vivos or testamentary trusts the beneficiaries of which
are one or more Persons falling within the scope of clauses (i) or (ii) above;
(b) Joel Dorfman, Henry S. Dorfman, Louis Glazier, Arnold S.
Mikelberg, Keith Jahnke and Edward Boan;
(c) a group of Persons fifty percent or more are comprised of
Persons set forth in paragraphs (a) and/or (b) above; or
(d) an Employee Stock Ownership Plan as defined in Section
4975(e)(7) of the Code.
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Determination Date - The (i) Business Day two Business Days before the
date fixed for a prepayment pursuant to a notice required by Section 2.2(a) or
(ii) the date of any acceleration pursuant to Section 8.2.
ERISA - As defined in Section 3.1(h).
Event of Default - As defined in Section 8.1.
Exchange Act - The Securities Exchange Act of 1934, as amended, and as
it may be further amended from time to time.
Funded Debt - All Indebtedness which would, in accordance with
generally accepted accounting principles, constitute long-term Indebtedness,
including, but not limited to, (a) any Indebtedness with a maturity more than
one year after the creation of such Indebtedness, (b) without duplication, any
portion of Indebtedness described in clause (a) included in current
liabilities, (c) any Indebtedness outstanding under a revolving credit or
similar agreement providing for borrowings (and renewals and extensions
thereof) over a period of more than one year notwithstanding that any such
Indebtedness may be payable on demand or within one year after the creation
thereof, (d) any Capitalized Lease obligation, (e) any Guarantee with respect
to Funded Debt of another Person and (f) the amount by which outstanding
Current Debt exceeds $10,000,000 at the last day of the thirty day period
within the previous twelve months in which said Current Debt is at its lowest
level.
Guaranties - All obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection or
obligations incurred in the ordinary course of business in connection with
repurchase agreements) of a Person guaranteeing or, in effect, guaranteeing any
Indebtedness, dividend or other obligation, of any other Person in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, or (y) to maintain working capital
or other balance sheet condition or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, (iii) to
lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
Indebtedness - (i) All items of borrowings, including Capitalized
Leases, which in accordance with generally accepted accounting principles would
be included in determining total
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liabilities as shown on the liability side of a balance sheet as of the date at
which Indebtedness is to be determined, (ii) all Guaranties (other than
Guaranties of Indebtedness of the Company or a Wholly-Owned Subsidiary by a
Subsidiary, or of a Wholly-Owned Subsidiary by the Company or a Subsidiary),
letters of credit and endorsements (other than of notes, bills and checks
presented to banks for collection or deposit in the ordinary course of
business), in each case to support Indebtedness of other Persons; and (iii) all
items of borrowings secured by any mortgage, pledge or Lien existing on
property owned subject to such mortgage, pledge, or Lien, whether or not the
borrowings secured thereby shall have been assumed by the Company or any
Subsidiary.
Institutional Holder - Any bank, trust company, insurance company,
pension fund, mutual fund or other similar financial institution which meets
the requirements of a "qualified institutional buyer" within the meaning of
Rule 144A under the Securities Act, which is or becomes a holder of any Note.
Investments - All investments made, in cash or by delivery of property,
directly or indirectly, in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
Lien - Any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any agreement to grant any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to file any financing statement under
the Uniform Commercial Code of any jurisdiction in connection with any of the
foregoing.
Majority-Owned Subsidiary - When applied to a Subsidiary, any
Subsidiary 80% or more of the Voting Stock of which is owned by the Company or
a Majority-Owned Subsidiary (other than Voting Stock required to be held as
director's qualifying stock).
Material Work Stoppage - A cessation or interruption of work by a
unified group of employees of the Company or its Subsidiaries arising from or
in connection with a labor dispute which causes Consolidated Income Available
for Fixed Charges during any quarter in which such work interruption occurs to
decline 10% or more from Consolidated Income Available for Fixed Charges for
the same fiscal quarter of the prior fiscal year.
Minority Interests - Capital stock of any Subsidiary not owned by the
Company or any Subsidiary.
Non-Operating Subsidiaries - Crown West, Inc., Gunsberg Corned Beef
Company, Miller's Transport, Inc. and Thorn Apple Valley Foreign Sales
Corporation; provided, however, that the foregoing corporations shall not be
Non-Operating Subsidiaries at any time as any of such corporations conducts
operations or owns assets of a material nature.
Noteholder - Any holder of a Note.
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PBGC - As defined in Section 3.1(h).
Permitted Investments - The following Investments of the Company and
its Subsidiaries:
(a) Existing Investments described in Annex IV hereto;
(b) Investments in commercial paper maturing in 270 days or less
from the date of issuance which, at the time of acquisition by the Company or
any Subsidiary, is accorded at least an "A-1" rating by Standard & Poor's
Corporation or a "P-1" rating by Moody's Investors Service, Inc.;
(c) Investments in direct obligations of the United States of
America, or any agency thereof the obligations of which are guaranteed by the
United States of America, maturing in twelve months or less from the date of
acquisition thereof;
(d) Investments in certificates of deposit, repurchase agreements
or bankers acceptances, maturing within one year from the date of origin,
issued by a bank organized under the laws of the United States or any state
thereof, having capital, surplus and undivided profits aggregating at least
$100,000,000;
(e) Investments in "money market" preferred stock rated "A" or
better by Standard & Poor's Corporation or by Moody's Investors Services, Inc.;
(f) Tax-exempt floating rate option tender bonds backed by an
irrevocable letter of credit issued by a bank the long-term debt rating of
which is at least "AA" by Standard & Poor's Corporation or "Aa" by Moody's
Investors Service, Inc.;
(g) Investments in Subsidiaries which operate principally in lines
of business similar to lines of business of the Company or its Subsidiaries
existing on the Closing Date;
(h) Investments in capital stock of the Company in an amount not
to exceed $20,000,000; and
(i) Investments in or commitments to purchase foreign currency;
provided that such Investment is made solely to the extent that the Company and
its Subsidiaries are obligated to make payments to other Persons in such
foreign currency.
In valuing any Investments for the purpose of applying the limitations
set forth above, such Investments shall be taken at the original cost thereof,
without allowance for any subsequent write-offs or appreciation or depreciation
therein, but less any amount repaid or recovered on account of capital or
principal.
For purposes of this definition, at any time when a corporation
becomes a Subsidiary, all investments of such corporation at such time shall be
deemed to have been made by such
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corporation, as a Subsidiary, at such time, provided, however, that the Company
shall have 60 days to dispose of any such investments which are not permitted
above.
Person - Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Plan - As defined in Section 3.1(h).
Property - Any real or personal or tangible or intangible asset.
Reinvestment Yield - The sum of (i) the yield set forth on page "USD"
of the Bloomberg Financial Markets Service at 11:00 a.m. Central Time on the
Determination Date opposite the maturity of the U.S. Treasury Security
corresponding to the Weighted Average Life to Maturity, rounded to the nearest
month, of the principal amount of the Notes to be prepaid, plus (ii) .50 of 1%.
If no maturity exactly corresponding to such rounded Weighted Average Life to
Maturity shall appear therein, yields for the two most closely corresponding
published maturities (one of which occurs prior and the other subsequent to the
Weighted Average Life to Maturity) shall be calculated pursuant to the
foregoing sentence and the Reinvestment Yield shall be interpolated from such
yields on a straight-line basis (rounding in each of such relevant periods, to
the nearest month). In the event that the Bloomberg Financial Markets Service
is no longer available, Noteholders holding at least 66-2/3% of the outstanding
principal amount of the Notes shall select a replacement entity offering a
comparable service.
Rentals - As of the date of any determination thereof, all fixed
payments (including all payments which the lessee is obligated to make to the
lessor on termination of the lease or surrender of the property) payable by the
Company or a Subsidiary, as lessee or sublessee under a lease of real or
personal property, but exclusive of any amounts required to be paid by the
Company or a Subsidiary (whether or not designated as rents or additional
rents) on account of maintenance, repairs, insurance, taxes, assessments,
amortization and similar charges.
Sale and Lease-Back Transaction - Any arrangement, directly or
indirectly, with any Person whereby a seller or a transferor shall sell or
otherwise transfer any real or personal property and then or thereafter lease
(whether or not a Capitalized Lease), or repurchase under an extended purchase
contract, the same or similar property from the purchaser or the transferee of
such property.
Securities Act - The Securities Act of 1933, as amended, and as it may
be further amended from time to time.
Subordinated Debt - Any Indebtedness which, by its terms, is expressly
subordinated in right of payment to the Notes.
Subsidiary - Any corporation other than a Non-Operating Subsidiary of
which more than 50% of the outstanding shares of Voting Stock are owned or
controlled by the Company.
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Voting Stock - Capital stock of any class of a corporation having
ordinary voting power to vote for the election of members of the board of
directors of such corporation, or persons performing similar functions.
Weighted Average Life to Maturity - As applied to any prepayment of
principal of the Notes, at any date, the number of years obtained by dividing
(a) the then outstanding principal amount of the Notes to be prepaid into (b)
the sum of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity, or other required
payment, including payment at final maturity, foregone by such prepayment in
the case of a prepayment of the Notes by (ii) the number of years (calculated
to the nearest 1/12th) which will elapse between such date and the date such
payment was scheduled to be made.
Wholly-Owned - When applied to a Subsidiary, any Subsidiary 100% of the
Voting Stock of which is owned by the Company and/or its Wholly-Owned
Subsidiaries (other than Voting Stock required to be held as director's
qualifying stock).
Terms which are defined in other Sections of this Agreement shall have
the meanings specified therein.
5.2 Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with
generally accepted accounting principles in force in the United States at the
time of determination, except where such principles are inconsistent with the
requirements of this Agreement.
5.3 Valuation Principles. Except where indicated expressly to the
contrary by the use of terms such as "fair value," "fair market value" or
"market value," each asset, each liability and each capital item of any Person,
and any quantity derivable by a computation involving any of such assets,
liabilities or capital items, shall be taken at the net book value thereof for
all purposes of this Agreement. "Net book value" with respect to any asset,
liability or capital item of any Person shall mean the amount at which the same
is recorded or, in accordance with generally accepted accounting principles,
should have been recorded in the books of account of such Person, as reduced by
any reserves which have been or, in accordance with generally accepted
accounting principles, should have been set aside with respect thereto, but in
every case (whether or not permitted in accordance with generally accepted
accounting principles) without giving effect to any write-up, write-down or
write-off (other than any write-down or write-off the entire amount of which
was charged to Consolidated Net Income or to a reserve which was a charge to
Consolidated Net Income) relating thereto which was made after the date of this
Agreement.
5.4 Direct or Indirect Actions. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
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Section 6. AFFIRMATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on
any Note:
6.1 Corporate Existence. The Company will maintain and preserve,
and will cause each Subsidiary to maintain and preserve, its corporate
existence and right to carry on its business and use, and cause each Subsidiary
to use, its best efforts to maintain, preserve, renew and extend all of its
rights, powers, privileges and franchise necessary to the proper conduct of its
business; provided, however, that the foregoing shall not prevent any
transaction permitted by Sections 7.6 or 7.7.
6.2 Insurance. The Company will insure and keep insured at all
times all of its Properties and all of its Subsidiaries' properties which are
material to the business, Properties, profits and prospects, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole and which are of an insurable nature and of the character usually
insured by companies operating similar properties, against loss or damage by
fire and from other causes customarily insured against by companies engaged in
similar businesses in such amounts as are usually insured against by such
companies. The Company also will maintain for itself and its Subsidiaries at
all times with, in its reasonable business judgment, financially sound and
reputable insurers adequate insurance against loss or damage from such hazards
and risks to the person and property of others as are usually insured against
by companies operating properties similar to the properties of the Company and
its Subsidiaries.
6.3 Taxes, Claims for Labor and Materials. The Company will pay
and discharge when due, and will cause each Subsidiary to pay and discharge
when due, all taxes, assessments and governmental charges or levies imposed
upon it or its property or assets, or upon properties leased by it (but only to
the extent required to do so by the applicable lease), prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon its property or assets, provided that neither the Company
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim, the payment of which is being contested in good faith and by
proper proceedings that will stay the forfeiture or sale of any property and
with respect to which adequate reserves are maintained.
6.4 Maintenance of Properties. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, Properties material to the business, Properties, profits and prospects,
operations or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole (whether owned in fee or a leasehold interest) in
good repair and working order, ordinary wear and tear excepted, and from time
to time will make all necessary repairs, replacements, renewals and additions,
to the extent such repairs, replacements, renewals and additions are, in the
reasonable business judgment of the Company, necessary and appropriate.
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6.5 Maintenance of Records. The Company will keep, and will cause
each Subsidiary to keep, at all times proper books of record and account in
which full, true and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such Subsidiary, in accordance with generally accepted accounting principles
consistently applied throughout the period involved (except for such changes as
are disclosed in such financial statements or in the notes thereto and
concurred in by the independent certified public accountants), and the Company
will, and will cause each Subsidiary to, provide reasonable protection against
loss or damage to such books of record and account.
6.6 Financial Information and Reports. The Company will furnish to
you and to any other Institutional Holder the following:
(a) As soon as available and in any event within 60 days after the
end of each of the first three quarterly accounting periods of each fiscal year
of the Company, an unaudited consolidated balance sheet of the Company and its
Subsidiaries as of the end of such period and unaudited consolidated statements
of income, shareholders' equity and cash flows of the Company and its
Subsidiaries for the periods beginning on the first day of such fiscal year and
the first day of such quarterly accounting period and ending on the date of
such balance sheet, setting forth in comparative form the corresponding
consolidated figures for the corresponding periods of the preceding fiscal
year, all in reasonable detail prepared in accordance with generally accepted
accounting principles consistently applied throughout the period involved
(except for changes disclosed in such financial statements or in the notes
thereto and concurred in by the Company's independent certified public
accountants) and certified by the chief financial officer or chief accounting
officer of the Company (i) outlining the basis of presentation, and (ii)
stating that the information presented in such statements presents fairly the
financial condition of the Company and its Subsidiaries and the results of
operations for the periods, subject to customary and other year-end audit
adjustments;
(b) As soon as available and in any event within 90 days after the
last day of each fiscal year, two copies of an audited consolidated balance
sheet of the Company and its Subsidiaries as of the end of such fiscal year and
two copies of the related audited consolidated statements of income,
shareholders' equity and cash flows for such fiscal year, in each case setting
forth in comparative form figures for the preceding fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved (except for
changes disclosed in such financial statements or in the notes thereto and
concurred in by independent certified public accountants) and accompanied by a
report unqualified as to limitations and scope (and not qualified as to "going
concern" status) as to the consolidated balance sheet and the related
consolidated statements of Coopers & Lybrand or any firm of independent public
accountants of recognized national standing reasonably acceptable to the
Noteholders and selected by the Company to the effect that such financial
statements have been prepared in conformity with generally accepted accounting
principles and present fairly, in all material respects, the financial
condition of the Company and its Subsidiaries and that the examination of such
financial statements by such accounting firm has been made in accordance with
generally accepted auditing standards;
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(c) Together with the financial statements delivered pursuant to
paragraphs (a) and (b) of this Section 6.6, a certificate of the chief
financial officer or chief accounting officer, (i) to the effect that such
officer has re-examined the terms and provisions of this Agreement and that at
the date of such certificate, during the periods covered by such financial
statements and as of the end of such periods, to the knowledge of such officer,
after due inquiry, the Company and each of its Subsidiaries is not, or was not,
in default in the fulfillment of any of the terms, covenants, provisions and
conditions of this Agreement and that no Event of Default or Default is
occurring or has occurred as of the date of such certificate, during such
periods or as of the end of such periods, or if the signer is aware of any such
Default or Event of Default, he shall disclose in such statement the nature
thereof, its period of existence and what action, if any, the Company has taken
or proposes to take with respect thereto, and (ii) stating whether, to the
knowledge of such officer, after due inquiry, the Company is in compliance with
Sections 7.1 through 7.10 and setting forth, in sufficient detail, the
information and computations required to establish whether or not the Company
was in compliance with the requirements of Sections 7.1 through 7.8 during the
periods covered by the financial statements then being furnished and as of the
end of such periods;
(d) Together with the financial reports delivered pursuant to
paragraph (b) of this Section 6.6, a certificate of the independent certified
public accountants (i) stating that in making the examination necessary for
expressing an opinion on such financial statements, nothing came to their
attention that caused them to believe that there is in existence or has
occurred any Event of Default hereunder, or any Default hereunder or, if such
accountants shall have obtained knowledge of any such Event of Default or
Default, describing the nature thereof and the length of time it has existed
and (ii) acknowledging that holders of the Notes may rely on their opinion on
such financial statements;
(e) Within 15 days after the Company obtains knowledge thereof,
notice of any litigation or any governmental proceeding or investigation
pending against the Company or any Subsidiary in each case (i) in which the
damages or penalties sought exceed $2,000,000, after deducting the amount with
respect to which the Company or any Subsidiary is insured and with respect to
which the insurer has assumed responsibility in writing or (ii) which might
otherwise materially adversely affect the business, Property, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or on the Company's ability to perform its obligations under this
Agreement or the Notes;
(f) As soon as available, copies of each financial statement,
notice, report and proxy statement which the Company shall furnish to its
shareholders; copies of each registration statement and periodic report which
the Company may file with the Securities and Exchange Commission, and any other
similar or successor agency of the Federal government administering the
Securities Act, the Exchange Act or the Trust Indenture Act of 1939, as
amended; copies of each report relating to the Company or its securities which
the Company may file with any securities exchange on which any of the Company's
securities may be registered; copies of any orders in any material proceedings
to which the Company or any of its Subsidiaries is a party, issued by any
governmental agency, Federal or state, having jurisdiction over the Company or
any of its Subsidiaries; and, except at such times as the Company is a
reporting company under
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Section 13 or 15(d) of the Exchange Act or has complied with the requirements
for the exemption from registration under the Exchange Act set forth in Rule
12g-3-2(b), such financial or other information as any holder of the Notes may
reasonably determine is required to permit such holder to comply with the
requirements of Rule 144A under the Securities Act in connection with the
resale by it of the Notes;
(g) Immediately upon receipt thereof, final copies of any report
as to accounting controls submitted to the Board of Directors of the Company by
independent accountants in connection with any audit of the Company or any
Subsidiary;
(h) As soon as available, a final copy of each other report
submitted to the Board of Directors of the Company or any Subsidiary by
independent accountants retained by the Company or any Subsidiary in connection
with any interim or special audit made by them of the books of the Company or
any Subsidiary; and
(i) Such additional information as you or such other Institutional
Holder of the Notes may reasonably request concerning the Company and its
Subsidiaries.
6.7 Inspection of Properties and Records. The Company will allow,
and will cause each Subsidiary to allow, any representative of you or any other
Institutional Holder, so long as you or such other Institutional Holder holds
any Note, at your expense, to visit and inspect any of its properties, to
examine its books of record and account and to discuss its affairs, finances
and accounts with its officers and its public accountants (and by this
provision the Company authorizes such accountants to discuss with you or such
Institutional Holder the Company's affairs, finances and accounts), all at such
reasonable times and as often as you or such Institutional Holder may
reasonably request. So long as a Default or Event of Default has occurred and
is continuing, the Company agrees to pay the reasonable costs of any
inspections made pursuant to this Section 6.7.
You and each other Noteholder agrees to treat any information obtained
by such Person pursuant to this Agreement which is marked and otherwise treated
as confidential by the Company as confidential; provided, however, that nothing
herein contained shall limit or impair the right or obligation of any holder of
the Notes to disclose such information: (i) to its directors, auditors,
attorneys, employees or agents who would have access to such information in the
normal course of the performance of such Person's duties, (ii) when required by
any law, ordinance or governmental order, regulation, rule, policy,
investigation or any regulatory authority request, (iii) as may be required in
any report, statement or testimony submitted to any municipal, state,
provincial or federal regulatory body having or claiming to have jurisdiction
over such Noteholder or to the National Association of Insurance Commissioners
or similar organizations or their successors, (iv) in connection with the
enforcement of the terms and conditions of this Agreement and the Notes, (v)
which is publicly available or readily ascertainable from public sources, or
which is received by any Noteholder of the Notes from a third Person who or
which is not bound to keep the same confidential, (vi) in connection with any
proceeding, case or matter pending (or on its face purported to be pending)
before any court, tribunal, arbitration board or any governmental agency,
commission, authority, board or similar
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entity, (vii) to the extent necessary in connection with any contemplated
transfer of any of the Notes by a Noteholder or (viii) to any other holder of
the Notes.
6.8 ERISA. (a) The Company agrees that all assumptions and
methods used to determine the actuarial valuation of employee benefits, both
vested and unvested, under any Plan of the Company or any Subsidiary, and each
such Plan, whether now existing or adopted after the date hereof, will comply
with ERISA and other applicable laws unless such non-compliance would not have
a material adverse effect on the business, Properties, profits and prospects,
operations or conditions, financial or otherwise, or on the Company's ability
to perform its obligations under this Agreement or the Notes.
(b) The Company will not at any time permit any Plan established,
maintained or contributed to by it or any Subsidiary or "affiliate" (as defined
in Section 407(d)(7) of ERISA) to:
(i) engage in any "prohibited transaction" as such term
is defined in Section 4975 of the Code or in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency" as such
term is defined in Section 302 of ERISA, whether or not waived; or
(iii) be terminated under circumstances which are likely to
result in the imposition of a Lien on the Property of the Company or any
Subsidiary pursuant to Section 4068 of ERISA, if and to the extent such
termination is within the control of the Company;
if the event or condition described in clauses (i), (ii) or (iii) above is
likely to subject the Company or any Subsidiary or ERISA affiliate to a
liability which, in the aggregate, is material in relation to the business,
property, operations, or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole.
(c) Upon the request of you or any other Institutional Holder, the
Company will furnish a copy of the annual report of each Plan (Form 5500)
required to be filed with the Internal Revenue Service. Copies of annual
reports shall be delivered no later than 30 days after the later of the date
such report has been filed with the Internal Revenue Service or the date the
copy is requested.
(d) Promptly upon the occurrence thereof, the Company will give
you and each other Institutional Holder written notice of (i) a reportable
event with respect to any Plan, to the extent that PBGC has not waived the
30-day notice period with respect thereto; (ii) the institution of any steps by
the Company, any Subsidiary, any ERISA affiliate, the PBGC or any other person
to terminate any Plan; (iii) the institution of any steps by the Company, any
Subsidiary, or any ERISA affiliate to withdraw from any Plan; (iv) a prohibited
transaction in connection with any Plan; (v) any material increase in the
contingent liability of the Company or any Subsidiary with respect to any
post-retirement welfare liability; or (vi) the taking of any action by the
Internal Revenue Service, the Department of Labor or the PBGC with respect to
any of the foregoing
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which, in any of the events specified above, would result in any material
liability of the Company or any of its Subsidiaries.
6.9 Compliance with Laws. The Company will comply, and will cause
each Subsidiary to comply in all material respects, with all laws, rules,
regulations, judgments and orders material to the business, Properties, profits
and prospects, operations or condition, financial or otherwise, of the Company
and its Subsidiaries taken as a whole; provided, however, that the Company and
its Subsidiaries shall not be required to comply with laws, rules, regulations,
judgments and orders the validity or applicability of which are being contested
in good faith and by appropriate proceedings; provided that the failure to
comply with such laws, rules or regulations would not have a material adverse
effect on the business, Properties, operations, assets or condition, financial
or otherwise, of the Company and its Subsidiaries taken as a whole or on the
Company's ability to perform its obligations under this Agreement or the Notes.
6.10 Acquisition of Notes. Neither the Company nor any Subsidiary
or Affiliate, directly or indirectly, will repurchase or offer to repurchase
any Notes unless the offer is made to repurchase Notes pro rata from all
holders at the same time and at the same terms. The Company will forthwith
cancel any Notes in any manner or at any time acquired by the Company or any
Subsidiary or Affiliate and such Notes shall not be deemed to be outstanding
for any of the purposes of this Agreement or the Notes.
6.11 Required Filings. The Company consents to the filing by the
Purchaser of copies of this Agreement with Standard & Poor's Corporation to
obtain a private placement number and with the National Association of
Insurance Commissioners to obtain a rating therefrom.
6.12 NAIC Filings. The Company shall, on the date it provides its
audited financial statements to the Noteholders pursuant to Section 6.6(b),
simultaneously provide such statements to the National Association of Insurance
Commissioners, Securities Valuation Office, 195 Broadway, New York, New York
10007.
Section 7. NEGATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on
any Note:
7.1 Net Worth. The Company will not at any time permit its
Consolidated Tangible Net Worth to be less than $65,000,000.
7.2 Funded Debt. The Company will not, and will not permit any
Subsidiary to, create, assign, incur, guarantee or otherwise become liable for,
directly or indirectly, any Funded Debt other than
(a) Funded Debt existing on the date hereof, as set forth in Annex
II hereto;
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(b) the Notes;
(c) Funded Debt owed to the Company by any Majority-Owned
Subsidiary or Funded Debt owed to any Majority-Owned Subsidiary by the Company
or Funded Debt owed by a Majority-Owned Subsidiary to another Majority-Owned
Subsidiary;
(d) Funded Debt (including refinancings, refundings or extensions
of Funded Debt described in Annex II hereto and Current Debt deemed to
constitute Funded Debt pursuant to the definition of Funded Debt in Section
5.1), unless after giving effect thereto and the application of the proceeds
thereof, the amount of total Funded Debt of the Company and its Subsidiaries
then outstanding would not exceed fifty-five percent (55%) of Consolidated
Total Capitalization determined as of the end of the Company's prior fiscal
quarter; and
(e) Funded Debt of Subsidiaries otherwise permitted by this
Section which when added to the amount of Indebtedness secured by Liens
incurred pursuant to paragraph (k) of Section 7.4 would not exceed twenty
percent (20%) of Consolidated Tangible Net Worth.
7.3 Fixed Charge Ratio. The Company will not, as of the end of
any fiscal quarter, permit the ratio of Consolidated Income Available for Fixed
Charges to Consolidated Fixed Charges for the preceding twelve months to be
less than 1.50 to 1.0; provided, however, that if a Material Work Stoppage has
occurred, for a period of four fiscal quarters commencing with the date of
commencement of such Material Work Stoppage, the Company will not, as of any
fiscal quarter, permit the ratio of Consolidated Income Available for Fixed
Charges to Consolidated Fixed Charges for the preceding 18 months to be less
than 1.50 to 1.00.
7.4 Liens. The Company will not, and will not permit any
Subsidiary to, create, assume, or incur, or permit to exist, directly or
indirectly, any Lien on its properties or assets, whether now owned or
hereafter acquired, except:
(a) Liens existing on Property of the Company or any Subsidiary as
of the date of this Agreement that are described in Annex III to this
Agreement;
(b) Liens for taxes, assessments or governmental charges not then
due and delinquent and for which a penalty has not attached or the validity of
which is being contested in good faith and by proper proceedings and with
respect to which adequate reserves are maintained in accordance with generally
accepted accounting principles;
(c) Liens arising in connection with court proceedings, provided
that the execution of such Liens is effectively stayed, such Liens are being
contested in good faith and adequate reserves are maintained with respect
thereto in accordance with generally accepted accounting principles;
(d) Liens arising in the ordinary course of business and not
incurred in connection with the borrowing of money, including encumbrances in
the nature of zoning restrictions, easements, rights and restrictions of record
on the use of real Property, landlord's and lessor's
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liens in the ordinary course of business, which do not, individually or in the
aggregate, materially interfere with the conduct of the business of the Company
and its Subsidiaries taken as a whole and do not materially affect the value of
the Property subject to such Liens;
(e) Construction or materialmen's or mechanic's Liens securing
obligations not overdue or, if overdue, are being contested in good faith and
by proper proceedings and with respect to which adequate reserves are
maintained in accordance with generally accepted accounting principles;
(f) Liens in connection with worker's compensation, social
security taxes or similar charges arising in the ordinary course of business
and not incurred in connection with the borrowing of money;
(g) Liens incurred in connection with obtaining or performing
government contracts in the ordinary course of business and not incurred in
connection with the borrowing of money;
(h) Liens resulting from extensions, renewals, refinancings and
refundings of Indebtedness secured by Liens permitted by paragraph (a) above;
provided there is no increase in the outstanding principal amount of
Indebtedness secured thereby and any new Liens attached only to the same
property theretofore subsequent to such earlier Lien;
(i) Liens securing Indebtedness owed by a Subsidiary to the
Company or the Company to any Subsidiary or to another Subsidiary;
(j) (A) any Lien in property or in rights relating thereto to
secure any rights granted with respect to such Property in connection with the
provision of all or a part of the purchase price or cost of the construction of
such Property created contemporaneously with, or within 270 days after, such
acquisition or the completion of such construction, or (B) any Lien in Property
existing on such Property at the time of acquisition thereof, whether or not
the debt secured thereby is assumed by the Company or such Subsidiary, or (C)
any Lien existing in the Property of a corporation or other person at the time
such corporation or other person is acquired (whether by purchase of stock, by
merger, or consolidation or otherwise) by the Company or a Subsidiary, or at
the time of a purchase, lease or other acquisition of the Properties of a
corporation or other person by the Company or a Subsidiary; provided that, any
Liens incurred pursuant to this clause (j) shall not exceed 100% of the fair
market value on the related Property at the time the Lien was originally
created; and
(k) Liens in addition to those permitted by clauses (g) through
(j) above, securing Indebtedness of the Company or any Subsidiary, provided
that at the time of the incurrence of any such Lien the sum of (x) the
aggregate principal amount outstanding of all Indebtedness secured by Liens
permitted by this clause (k), plus (y) the aggregate amount of Funded Debt of
Subsidiaries then outstanding shall not exceed 20% of Consolidated Tangible Net
Worth.
In the event that the Company or any Subsidiary creates, assumes,
incurs or permits to exist any Lien not otherwise permitted by this Section
7.4, the Company will make or cause to be
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made provision whereby the Notes will be secured equally and ratably with all
other obligations secured by such Liens (subject (i) to any holder of Notes
having the right to decline to have its Notes secured by such Liens and (ii) to
the receipt by the Noteholders of an opinion of counsel in form and substance
satisfactory to such Noteholders to the effect that the Notes will be secured
equally and ratably with all other obligations secured by such Liens), and in
any case the Notes shall have the benefit, to the full extent that, and with
such priority as, the holders may be entitled thereto under applicable law, of
an equitable Lien on such Property securing the Notes.
7.5 Restricted Payments. The Company will not, except as
hereinafter provided:
(a) declare or pay any dividends, either in cash or Property, on
any shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company); or
(b) directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any warrants,
rights or options to purchase or acquire any shares of its capital stock; or
(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock; or
(d) make any Investment other than a Permitted Investment; or
(e) make any payment, either directly or indirectly or through any
Subsidiary, of principal of any Subordinated Debt other than at the expressed
maturity date thereof and scheduled mandatory prepayments or redemptions
thereof in accordance with the terms in effect on the date of creation of such
Subordinated Debt;
(all such declarations, payments, purchases, redemptions, retirements,
distributions and Investments being herein collectively called "Restricted
Payments") if, after giving effect thereto (i) the Company could not incur an
additional $1.00 of Funded Debt pursuant to Section 7.2, (ii) a Default or
Event of Default would exist or (iii) the aggregate amount of all Restricted
Payments made during the period from and after May 31, 1993, to and including
the date of the Restricted Payment in question would exceed the sum of:
(x) $15,000,000, plus
(y) 60% (or minus 100% in the case of a deficit) of
Consolidated Net Income for such period (computed on a cumulative basis for
each fiscal quarter commencing after May 31, 1993 to and including the date of
making a Restricted Payment), plus
(z) the net cash proceeds from the sale or issuance,
after the date of this Agreement, of the Company's capital stock.
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The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after its date of declaration.
Any dividend which complies with the provisions of this Section 7.5 on the date
of its declaration shall be deemed to comply on its date of payment, provided
that any intervening event giving rise to non-compliance is not the result of a
Restricted Payment.
7.6 Merger or Consolidation. The Company will not, and will not
permit any Subsidiary to, merge or consolidate with any other Person, except
that:
(a) The Company may consolidate with or merge into any Person or
permit any other Person to merge into it, provided that immediately after
giving effect thereto,
(i) The Company is the successor corporation or, if
the Company is not the successor corporation, the successor
corporation is a corporation organized under the laws of a
state of the United States of America or the District of
Columbia and shall expressly assume in writing the Company's
obligations under the Notes and this Agreement, and the
surviving corporation shall furnish the holders of the Notes
an opinion of counsel in form and substance satisfactory to
such holders to the effect that the instrument of assumption
has been duly authorized, executed and delivered and
constitutes the legal, valid and binding contract and
agreement of the surviving corporation enforceable in
accordance with its terms, except as enforcement of such terms
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable
principles;
(ii) There shall exist no Event of Default or
Default; and
(iii) The Company or such successor corporation could
incur at least $1.00 of additional Funded Debt pursuant to
Section 7.2;
(b) Any Subsidiary may (i) merge into the Company or another
Majority-Owned Subsidiary or (ii) sell, transfer or lease all or any part of
its assets to the Company or to another Majority-Owned Subsidiary or (iii)
merge into any Person which, as a result of such merger, concurrently becomes a
Majority-Owned Subsidiary, provided in each such instance that there shall
exist no Event of Default or Default.
7.7 Sale of Assets. The Company will not, and will not permit any
Subsidiary to, sell, lease, transfer or otherwise dispose of any assets,
including the disposition of the stock of any Subsidiary and including any Sale
and Lease-Back Transaction (collectively, a "Disposition"), in one or a series
of transactions, other than in the ordinary course of business, to any Person,
other than the Company or a Majority-Owned Subsidiary if immediately preceding
such Disposition and after giving effect to such Disposition, (a) during any
twelve consecutive month period of the Company the aggregate book value of all
such assets sold, leased, transferred or otherwise disposed of during such
period, would exceed 10% of the Consolidated Total Assets of the Company and
its Subsidiaries determined in accordance with generally accepted accounting
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principles as of the end of the Company's immediately preceding fiscal year and
(b) since the date of this Agreement, the aggregate book value of all such
assets sold, leased, transferred or otherwise disposed of would exceed 25% of
the Consolidated Total Assets of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles as of the end of the
Company's immediately preceding fiscal year; provided, however, that the
Company may, and may permit any Subsidiary to, sell, lease, transfer or
otherwise dispose of assets in excess of the percentages specified in
subparagraphs (a) and (b) above if the cash proceeds therefrom are (x) utilized
within one year after such Disposition to purchase or are committed to the
purchase of Property of a similar nature and of at least equivalent value or
(y) used to prepay Funded Debt (except Subordinated Debt), including the Notes,
on a pro rata basis, subject to the prepayment requirements and at the price
set forth in Section 2.2(a).
7.8 Sale and Lease-Back Transaction. The Company will not, and
will not permit any Subsidiary to, effect any Sale and Lease-Back Transaction
unless such Sale and Lease-Back Transaction complies with the requirements of
Sections 7.2, 7.6 and 7.7.
7.9 Change in Business. Neither the Company nor any Subsidiary
will engage in any business as a result of which more than thirty percent (30%)
of Consolidated Net Income will derive from businesses substantially different
from that currently conducted by them.
7.10 Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, enter into any transaction (including the
furnishing of goods or services) with an Affiliate except in the ordinary
course of business and on terms and conditions no less favorable to the Company
or such Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate.
Section 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Nature of Events. An "Event of Default" shall exist if any
one or more of the following occurs:
(a) Default in the payment of interest on the Notes when due and
such default shall continue for a period of five days;
(b) Default in the payment of the principal of any of the Notes or
the premium thereon, if any, at maturity, upon acceleration of maturity or at
any date fixed for prepayment;
(c) Default shall occur (i) in the payment of the principal of,
premium, or interest on any other Indebtedness of the Company or its
Subsidiaries, aggregating in excess of $2,000,000 in principal amount as and
when due and payable (whether by lapse of time, declaration, call for
redemption or otherwise), (ii) under any mortgage, agreement or other
instrument of the Company or any Subsidiary securing such Indebtedness or under
or pursuant to which such Indebtedness aggregating in excess of $2,000,000 is
issued, (iii) under any leases other than Capitalized Leases of the Company or
any Subsidiary, with aggregate Rentals in excess of
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<PAGE> 37
$2,000,000 or (iv) with respect to any combination of the foregoing involving
Indebtedness and/or Rentals aggregating in excess of $2,000,000 regardless of
whether such defaults would be Events of Default hereunder; provided a notice
of such default shall have been provided to the Company by the applicable
lender, lessor or Purchaser, and any such defaults shall continue, unless
waived, beyond the period of grace, if any, allowed with respect thereto;
(d) Default in the observance or performance of Sections 7.1
through 7.10 and Section 8.7 of this Agreement;
(e) Default in the observance or performance of any other
condition or provision of this Agreement which is not remedied within 30 days
after written notice of such default is provided to the Company by any
Noteholder;
(f) Any representation or warranty made by the Company in this
Agreement, or made by the Company in any written statement or certificate
furnished by the Company in connection with the issuance and sale of the Notes
or furnished by the Company pursuant to this Agreement, proves incorrect in any
material respect as of the date of the issuance or making thereof; provided,
that if the Company shall have given written notice to the Noteholders that any
such representation or warranty was untrue in any material respect and the
Noteholders have not declared an Event of Default within 60 days of such
notice, then the Noteholders shall be deemed to have waived any Event of
Default with respect to this paragraph (f);
(g) Any fines, penalties, judgments, writs or warrants of
attachment or any similar processes individually or in the aggregate in excess
of $2,000,000 shall be entered or filed against the Company or any Subsidiary
or against any Property or assets of either and remain unpaid, unvacated,
unbonded or unstayed (through appeal or otherwise) for a period of 30 days
after the Company or any Subsidiary receives notice thereof;
(h) The Company or any Subsidiary shall incur a "Distress
Termination" (as defined in Title IV of ERISA) of any Plan or any trust created
thereunder which results in material liability to the PBGC, the PBGC shall
institute proceedings to terminate any Plan or any trust created thereunder, or
a trustee shall be appointed by a United States District Court pursuant to
Section 4042(b) of ERISA to administer any Plan or any trust created
thereunder; or
(i) The Company or any Subsidiary shall
(i) generally not pay its debts as they become
due or admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or for
reorganization or for the adoption of an arrangement under the
Federal Bankruptcy Code, or any similar applicable bankruptcy
or insolvency law, as now or in the future amended (herein
collectively called "Bankruptcy Laws"), or an answer or other
pleading admitting or failing to deny the material allegations
of such a petition or seeking, consenting to or acquiescing in
relief provided for under the Bankruptcy Laws;
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<PAGE> 38
(iii) make an assignment of all or a substantial
part of its Property for the benefit of its creditors;
(iv) seek or consent to or acquiesce in the
appointment of a receiver, liquidator, custodian or trustee of
it or for all or a substantial part of its Property;
(v) be finally adjudicated a bankrupt or
insolvent;
(vi) be subject to the entry of a court order,
which shall not be vacated, set aside or stayed within 60 days
from the date of entry, appointing a receiver, liquidator,
custodian or trustee of it or for all or a substantial part of
its Property, or entering of an order for relief pursuant to
an involuntary case, or effecting an arrangement in,
bankruptcy or for a reorganization pursuant to the Bankruptcy
Laws or for any other judicial modification or alteration of
the rights of creditors; or
(vii) be subject to the assumption of custody or
sequestration by a court of competent jurisdiction of all or a
substantial part of its Property, which custody or
sequestration shall not be suspended or terminated within 60
days from its inception.
8.2 Remedies on Default. When any Event of Default described in
paragraphs (a) through (h) of Section 8.1 has happened and is continuing, the
holder or holders of at least 25% in principal amount of the Notes then
outstanding may by notice to the Company declare the entire principal, together
with the premium set forth below, and all interest accrued on all Notes to be,
and such Notes shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
expressly waived. Notwithstanding the foregoing, when (i) any Event of Default
described in paragraphs (a) or (b) of Section 8.1 has happened and is
continuing, any holder may by notice to the Company declare the entire
principal, together with the premium set forth below, and all interest accrued
on the Notes then held by such holder to be, and such Notes shall thereupon
become, forthwith due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are expressly waived and (ii) where any
Event of Default described in paragraph (i) of Section 8.1 has happened, then
all outstanding Notes shall immediately become due and payable without
presentment, demand or notice of any kind. Upon the Notes or any of them
becoming due and payable as aforesaid, the Company will forthwith pay to the
holders of such Notes the entire principal of and interest accrued on such
Notes, plus, to the extent permitted by law, a premium in the event that the
Reinvestment Yield shall, on the Determination Date, be less than the interest
rate payable on or in respect of the Notes. Such premium shall equal (x) the
aggregate present value of the principal so accelerated and the aggregate
present value of the interest which would have been payable in respect of such
principal absent such accelerated payment, determined by discounting
(semi-annually on the basis of a 360-day year composed of twelve 30-day months)
each such amount utilizing an interest factor equal to the Reinvestment Yield,
less (y) the principal amount so accelerated.
-34-
<PAGE> 39
8.3 Annulment of Acceleration of Notes. The provisions of Section
8.2 are subject to the condition that if the principal of and accrued interest
on the Notes have been declared immediately due and payable by reason of the
occurrence of any Event of Default described in paragraphs (a) through (h),
inclusive, of Section 8.1, the holder or holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding may, by written instrument filed
with the Company, rescind and annul such declaration and the consequences
thereof, provided that (i) at the time such declaration is annulled and
rescinded no judgment or decree has been entered for the payment of any monies
due pursuant to the Notes or this Agreement, (ii) all arrears of interest upon
all the Notes and all other sums payable under the Notes and under this
Agreement (except any principal, interest or premium on the Notes which has
become due and payable solely by reason of such declaration under Section 8.2)
shall have been duly paid and (iii) each and every Event of Default shall have
been cured or waived; and provided further, that no such rescission and
annulment shall extend to or affect any subsequent Default or Event of Default
or impair any right consequent thereto. For purposes of determining whether
the requisite principal amount of Notes have made or concurred in such
annulment and recission, Notes held in the name of or owned beneficially by,
the Company or any Subsidiary or any Affiliate thereof, shall not be deemed
outstanding.
8.4 Other Remedies. If any Event of Default shall be continuing,
any holder of Notes may enforce its rights by suit in equity, by action at law,
or by any other appropriate proceedings, whether for the specific performance
(to the extent permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or in aid of the exercise of any power granted in
this Agreement, and may enforce the payment of any Note held by such holder and
any of its other legal or equitable rights.
8.5 Conduct No Waiver; Collection Expenses. No course of dealing
on the part of any holder of Notes, nor any delay or failure on the part of any
holder of Notes to exercise any of its rights, shall operate as a waiver of
such rights or otherwise prejudice such holder's rights, powers and remedies.
If the Company fails to pay, when due, the principal of, premium, if any, or
the interest on, any Note, or fails to comply with any other provision of this
Agreement, the Company will pay to each holder, to the extent permitted by law,
on demand, such further amounts as shall be sufficient to cover the cost and
expenses, including but not limited to reasonable attorneys' fees, incurred by
such holders of the Notes in collecting any sums due on the Notes or in
otherwise enforcing any of their rights.
8.6 Remedies Cumulative. No right or remedy conferred upon or
reserved to any holder of Notes under this Agreement is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy given under this
Agreement or now or hereafter existing under any applicable law. Every right
and remedy given by this Agreement or by applicable law to any holder of Notes
may be exercised from time to time and as often as may be deemed expedient by
such holder, as the case may be.
-35-
<PAGE> 40
8.7 Notice of Default. With respect to Events of Default or
Defaults hereunder or claimed defaults with respect to any Indebtedness other
than the Notes, the Company will give the following notices: the Company
promptly will furnish to each holder of a Note notice in writing by overnight
courier of the occurrence of an Event of Default or a Default or receipt of a
notice of a claimed default with respect to Indebtedness the principal amount
of which exceeds $100,000 other than the Notes or any other action taken by a
lender with respect to any claimed default with respect to such Indebtedness.
Such notice shall specify the nature of such Event of Default or Default or
claimed default, the period of existence thereof and what action the Company
has taken or is taking or proposes to take with respect thereto.
Section 9. AMENDMENTS, WAIVERS AND CONSENTS
9.1 Matters Subject to Modification. Any term, covenant,
agreement or condition of this Agreement may, with the consent of the Company,
be amended, or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), if the Company
shall have obtained the consent in writing of the holder or holders of at least
66-2/3% in aggregate principal amount of outstanding Notes; provided, however,
that, without the written consent of the holder or holders of all of the Notes
then outstanding, no such waiver, modification, alteration or amendment shall
be effective which will (i) change the time of payment (including any required
prepayment) of the principal of or the interest on any Note, (ii) reduce the
principal amount thereof or the premium, if any, or change the rate of interest
thereon, (iii) change any provision of any instrument affecting the preferences
between holders of the Notes or between holders of the Notes and other
creditors of the Company, or (iv) change any of the provisions of Section 6.10,
Section 8.1, Section 8.2, Section 8.3 or this Section 9.
For the purpose of determining whether holders of the requisite
principal amount of Notes have made or concurred in any waiver, consent,
approval, notice or other communication under this Agreement, Notes held in the
name of, or owned beneficially by, the Company, any Subsidiary or any Affiliate
thereof, shall not be deemed outstanding.
9.2 Solicitation of Holders of Notes. The Company will not
solicit, request or negotiate for or with respect to any proposed waiver or
amendment of any of the provisions of this Agreement or the Notes unless each
record holder of the Notes (irrespective of the amount of Notes then owned by
it) shall concurrently be informed thereof by the Company and shall be afforded
the opportunity of considering the same and shall be supplied by the Company
with sufficient information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any waiver or consent
effected pursuant to the provisions of this Section 9 shall be delivered by the
Company to each holder of outstanding Notes forthwith following the date on
which the same shall have been executed and delivered by the holder or holders
of the requisite percentage of outstanding Notes. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by
way of supplemental or additional interest, fee or otherwise, to any holder of
the Notes as consideration for or as an inducement to the entering into by any
holder of the Notes of any waiver or amendment of any of
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<PAGE> 41
the terms and provisions of this Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to each holder of the then
outstanding Notes.
9.3 Binding Effect. Any such amendment or waiver shall apply
equally to all the holders of the Notes and shall be binding upon them, upon
each future holder of any Note and upon the Company whether or not such Note
shall have been marked to indicate such amendment or waiver. No such amendment
or waiver shall extend to or affect any obligation not expressly amended or
waived or impair any right related thereto.
Section 10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE
AND REPLACEMENT
10.1 Form of Notes. The Notes initially delivered under this
Agreement will be in the form of one fully registered Note in the form attached
as Exhibit A. The Notes are issuable only in fully registered form and in
denominations of at least $1,000,000 (or the remaining outstanding balance
thereof, if less than $1,000,000).
10.2 Note Register. The Company shall cause to be kept at its
principal office a register (the "Note Register") for the registration and
transfer of the Notes. The names and addresses of the holders of Notes, the
transfer thereof and the names and addresses of the transferees of the Notes
shall be registered in the Note Register. The Company may deem and treat the
person in whose name a Note is so registered as the holder and owner thereof
for all purposes and shall not be affected by any notice to the contrary, until
due presentment of such Note for registration of transfer as provided in this
Section 10.
10.3 Issuance of New Notes upon Exchange or Transfer. Upon
surrender for exchange or registration of transfer of any Note at the office of
the Company designated for notices in accordance with Section 11.2, the Company
shall execute and deliver, at its expense, one or more new Notes of any
authorized denominations pursuant to Section 10.1 requested by the holder of
the surrendered Note, each dated the date to which interest has been paid on
the Note so surrendered (or, if no interest has been paid, the date of such
surrendered Note), but in the same aggregate unpaid principal amount as such
surrendered Note, and registered in the name of such person or persons as shall
be designated in writing by such holder. Every Note surrendered for
registration of transfer shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or by its
attorney duly authorized in writing. The Company may condition its issuance of
any new Note in connection with a transfer by any Person on compliance by the
transferee of the representations required under Section 3.2 and a written
certification to said effect signed by the transferee, by Institutional Holders
on compliance with Section 2.5 and on the payment to the Company of a sum
sufficient to cover any stamp tax or other governmental charge imposed in
respect of such transfer.
10.4 Replacement of Notes. Upon receipt of evidence satisfactory
to the Company of the loss, theft, mutilation or destruction of any Note, and
in the case of any such loss, theft or destruction upon delivery of a bond of
indemnity in such form and amount as shall be reasonably
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<PAGE> 42
satisfactory to the Company or in the event of such mutilation upon surrender
and cancellation of the Note, the Company, without charge to the holder
thereof, will make and deliver a new Note, of like tenor in lieu of such lost,
stolen, destroyed or mutilated Note. If any such lost, stolen or destroyed
Note is owned by you or any other Institutional Holder, then the affidavit of
an authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of the Note at the time of such loss, theft or
destruction shall be accepted as satisfactory evidence thereof, and no further
indemnity shall be required as a condition to the execution and delivery of a
new Note, other than a written agreement of such owner (in form reasonably
satisfactory to the Company) to indemnify the Company.
Section 11. MISCELLANEOUS
11.1 Expenses. Whether or not the purchase of Notes herein
contemplated shall be consummated, the Company agrees to pay directly all
reasonable expenses in connection with the preparation, execution and delivery
of this Agreement and the transactions contemplated by this Agreement,
including, but not limited to, out-of-pocket expenses, filing fees of Standard
& Poor's Corporation in connection with obtaining a private placement number,
charges and disbursements of special counsel, photocopying and printing costs
and charges for shipping the Notes, adequately insured, to you at your home
office or at such other address as you may designate, and all similar expenses
(including the reasonable fees and expenses of counsel) relating to any
amendments, waivers or consents in connection with this Agreement or the Notes,
including, but not limited to, any such amendments, waivers or consents
resulting from any work-out, renegotiation or restructuring relating to the
performance by the Company of its obligations under this Agreement and the
Notes. The Company also agrees that it will pay and save you harmless against
any and all liability with respect to (a) placement agent fees and (b) stamp
and other documentary taxes, if any, which may be payable, or which may be
determined to be payable in connection with the execution and delivery of this
Agreement or the Notes (but not in connection with a transfer of any Notes),
whether or not any Notes are then outstanding. The obligations of the Company
under this Section 11.1 shall survive the retirement of the Notes.
11.2 Notices. Except as otherwise expressly provided herein, all
communications provided for in this Agreement shall be in writing and delivered
or sent by registered or certified mail, return receipt requested, or by
overnight courier (i) if to you, to the address set forth below your name in
Annex I, or to such other address as you may in writing designate, (ii) if to
any other holder of the Notes, to such address as the holder may designate in
writing to the Company, and (iii) if to the Company, to Thorn Apple Valley,
Inc., 18700 West Ten Mile Road, Southfield, Michigan 48075, Attention: Louis
Glazier, or to such other address as the Company may in writing designate.
11.3 Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be executed, (ii) documents received by you
at the closing of the purchase of the Notes (except the Notes themselves), and
(iii) financial statements, certificates and other information previously or
hereafter furnished to you, may be reproduced by you by any photographic,
photostatic,
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<PAGE> 43
microfilm, micro-card, miniature photographic or other similar process, and you
may destroy any original document so reproduced. The Company agrees and
stipulates that any such reproduction which is legible shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence; provided that nothing herein contained
shall preclude the Company from objecting to the admission of any reproduction
on the basis that such reproduction is not accurate, has been altered or is
otherwise incomplete.
11.4 Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
11.5 Law Governing; Consent to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois. No provision of this Agreement may be waived, changed or modified,
or the discharge thereof acknowledged, orally, except by an agreement in
writing signed by the party against whom the enforcement of any waiver, change,
modification or discharge is sought. THE COMPANY IRREVOCABLY AGREES THAT,
SUBJECT TO THE NOTEHOLDER'S SOLE AND ABSOLUTE CONSENT TO A CONTRARY
JURISDICTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING
OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR THE NOTES SHALL BE LITIGATED
ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, COUNTY OF COOK, STATE
OF ILLINOIS. THE COMPANY HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF
ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY, COUNTY AND STATE.
THE COMPANY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE
OF ANY LITIGATION BROUGHT AGAINST THE COMPANY BY THE NOTEHOLDERS IN ACCORDANCE
WITH THIS PARAGRAPH.
11.6 Headings. The headings of the sections and subsections of
this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
11.7 Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart or reproduction thereof permitted by Section
11.3.
11.8 Reliance on and Survival of Provisions. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant to this Agreement, whether or not in connection
with a closing, (i) shall be deemed to have been relied upon by you,
notwithstanding any investigation heretofore or hereafter made by you or on
your behalf and (ii) shall survive the delivery of this Agreement and the
Notes.
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<PAGE> 44
11.9 Integration and Severability. This Agreement embodies the
entire agreement and understanding between you and the Company, and supersedes
all prior agreements and understandings relating to the subject matter hereof.
In case any one or more of the provisions contained in this Agreement or in any
Note, or application thereof, shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained in this Agreement and in any Note, and any other application thereof,
shall not in any way be affected or impaired thereby.
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<PAGE> 45
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed and delivered by their respective officer or officers
thereunto duly authorized.
THORN APPLE VALLEY, INC.
By: /s/ LOUIS GLAZIER
------------------------------
LOUIS GLAZIER
Title:
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ LOUIS G. LOWER, III
------------------------------
LOUIS G. LOWER, III
By: /s/ BARRY S. PAUL
------------------------------
Authorized Signatories BARRY S. PAUL
By: /s/ PATRICIA W. WILSON
------------------------------
PATRICIA W. WILSON
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<PAGE> 46
SCHEDULE I
Principal Amount of Notes to Be Purchased
<TABLE>
<S> <C>
Name and Address of Purchaser Principal Amount of Notes
- ----------------------------- -------------------------
Allstate Life Insurance Company $8,000,000
3075 Sanders Road, STE G4A
Northbrook, Illinois 60062-7127
Attn: Investment Operations
Private Placements
Telephone: (708) 402-8709
Telecopy: (708) 402-7331
</TABLE>
All notices of scheduled payments and written confirmations of such wire
transfer should be sent to the address above. All payments by Fedwire
transfer of immediately available funds, identifying the name of the
Issuer (and the Credit, if any), the Private Placement Number preceded by
"DPP" and the payment as principal, interest or premium, in the
format as follows:
<TABLE>
<S> <C>
[BBK = Harris Trust and Savings Bank
ABA #071000288
BNF = Allstate Life Insurance Company
Collection Account #168-117-0
ORG = Thorn Apple Valley, Inc.
OBI = DPP (PPN: 885184 A* 2)
Payment Due Date (MM/DD/YY) -
P__________ (Enter "P" and amount of
principal being remitted, for example,
P5000000.00) -
I__________ (Enter "I" and amount of
interest being remitted, for example,
I225000.00)
</TABLE>
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<PAGE> 47
Securities to be delivered to:
Harris Trust and Savings Bank
111 West Monroe Street
Master Trust Department, 5E
Chicago, Illinois 60690
Attention: Lisa Cox
For Allstate Life Insurance Company/
Safekeeping Account No. 23-91317
All financial reports, compliance certificates and all other written
communications, including notice of prepayments, to be sent to:
Allstate Life Insurance Company
Private Placements Department
3100 Sanders Road, STE J2A
Northbrook, IL 60062-7154
Tax ID #36-2554642
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<PAGE> 48
SCHEDULE 3.1(o)
TAXES
The Company has appealed an IRS assessment with respect to its fiscal years
1989, 1990 and 1991. In those years, the Company deducted a total of $283,333
paid with respect to a covenant not to compete executed by Allen Charlupski (a
former officer, director and shareholder of the Company), and the Company
deducted a total of $437,500 paid with respect to covenants not to compete
executed by Max and Ivan Miller (former officers, directors and shareholders of
Tri-Miller Packing, Inc.). The Charlupski noncompete agreement requires total
payments of $700,000; the Miller noncompete agreements require total payments
of $1,500,000. The Company has reserved $700,000 at present with respect to
these disputes.
<PAGE> 49
ANNEX I
THORN APPLE VALLEY, INC.
SUBSIDIARY CORPORATIONS AND ENTITIES
<TABLE>
<S> <C>
THORN APPLE VALLEY, INC.,
a Michigan corporation
- -------------------------------------
Incorporation Date: July 23, 1971
Qualified in: State:
California
Illinois
Kansas
Massachusetts
Missouri
New Jersey
New York
North Carolina
Ohio
Oklahoma
Pennsylvania
Utah
CAVANAUGH LAKEVIEW FARMS, LTD.,
a Michigan corporation
- -------------------------------------------------
Incorporation Date: July 2, 1981
Authorized Capital Stock: 500,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
- 225,000 shares
</TABLE>
<PAGE> 50
<TABLE>
<S> <C>
COAST REFRIGERATED TRUCKING CO., INC.
a North Carolina corporation
- -------------------------------------------------------
Incorporation Date: June 21, 1971
Authorized Capital Stock: 1,000 Shares, Common Stock
$100.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
CROWN WEST, INC.,
a Michigan corporation
- ------------------------
Incorporation Date: January 16, 1978
Authorized Capital Stock: 50,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
- 1,000 Shares
FREDERICK HOLDINGS, INC.,
a Michigan corporation
- ----------------------------------
Incorporation Date: August 3, 1993
Authorized Capital Stock: 60,000 Shares, Common Stock
No Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
- 1,000 Shares
GUNSBERG CORNED BEEF COMPANY,
a Michigan corporation
- -----------------------------------------------
Incorporation Date: March 1, 1989
Authorized Capital Stock: 50,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
- 100 Shares
</TABLE>
- 2 -
<PAGE> 51
<TABLE>
<S> <C>
MILLER'S TRANSPORT, INC.,
a Utah corporation
- ------------------------------------
Incorporation Date: February 3, 1965
Authorized Capital Stock: Common Stock (Voting) 20,000 Shares,
$1.00 Par Value
Preferred Stock, 10,000 Shares,
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
- 20,000 Shares
NATIONAL FOOD EXPRESS, INC.,
a Michigan corporation
- ---------------------------------------
Incorporation Date: October 25, 1983
Authorized Capital Stock: 1,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
TAV BRANDS, INC.,
a Nevada corporation
- ------------------------
Incorporation Date: April 5, 1991
Authorized Capital Stock: 25,000 Shares, Common Stock
$0.01 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
- 100 Shares
</TABLE>
- 3 -
<PAGE> 52
<TABLE>
<S> <C>
THORN APPLE VALLEY FOREIGN SALES
CORPORATION, a U.S. Virgin Islands corporation
- ----------------------------------------------
Incorporation Date: December 19, 1984
Authorized Capital Stock: 1,000 Shares, Common Stock,
No Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
TILLMAN HOLDINGS, INC.
a Michigan corporation
- ------------------------------
Incorporation Date: June 24, 1994
Authorized Capital Stock: 60,000 Shares, Common Stock
No Par Value
Shareholder(s):
TRI-MILLER PACKING, CO.,
a Utah corporation
- ---------------------------------
Incorporation Date: November 15, 1960
Authorized Capital Stock; Common Stock (Voting)
2 Shares, $1.00 Par Value
Preferred Stock
500,000 Shares, $1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a Michigan corporation
- 2 Shares Common Stock
</TABLE>
- 4 -
<PAGE> 53
<TABLE>
<S> <C>
TRI-MILLER TRANSPORTATION COMPANY, INC.,
a Utah corporation
- ----------------------------------------------------------------
Incorporation Date: December 4, 1985
Authorized Capital Stock: 50,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Miller's Transport, Inc., a Utah corporation
- 35,451 Shares
Tri-Miller Packing Co., a Utah corporation
- 14,549 Shares
</TABLE>
- 5 -
<PAGE> 54
10/13/94
THORN APPLE VALLEY, INC.
STANDBY LETTERS OF CREDIT SUMMARY
ANNEX II
<TABLE>
<S> <C>
MICHIGAN NATIONAL BANK
- ----------------------
#15995
EXPIRES: 4/1
OUTSTANDING: $250,000
BENEFICIARY: BUREAU OF WORKER'S COMP
BENEFICIARY: BUREAU OF WORKER'S COMP
#15871
EXPIRES: 12/1
OUTSTANDING: $500,000
BENEFICIARY: ST. PAUL FIRE & MARINE INSURANCE
OLD KENT BANK
- -------------
THREE (3) IN THE AMOUNT OF $250,000 EACH, TOTAL OF... $750,000
ONE (1) IN THE AMOUNT OF... $100,000
KEY BANK OF UTAH
- ----------------
#021-407-KBU
EXPIRES: 6/8
OUTSTANDING: $700,000
BENEFICIARY: INDUSTRIAL ACCIDENTS $403,500
INDUSTRIAL COMMISSION OF UTAH -------------
$1,103,500
-------------
STANDBY LETTERS OF CREDIT - VARIOUS INSURANCE AGREEMENTS $2,703,500
OLD KENT BANK
- -------------
#8934
EXPIRES: 12/16/98
OUTSTANDING: $5,590,410.96
TRUSTEE: PNC BANK, OHIO, NATIONAL ASSOCIATION
SERVING AS SECURITY TO A $5,500.000 MICHIGAN STRATEGIC
FUND ADJUSTABLE RATE DEMAND LIMITED OBLIGATION REVENUE
BOND. (INDEBTEDNESS INCLUDED ON IRB SCHEDULE)
-------------
TOTAL STANDBY LETTERS OF CREDIT $8,293,910.96
=============
</TABLE>
<PAGE> 55
THORN APPLE VALLEY, INC.
SUMMARY OF INDEBTEDNESS
ANNEX II
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
@ 9/16/94
-----------
<S> <C>
LINES OF CREDIT:
Combined 11,840,000
----------
NOTES PAYABLE:
Utah Subsidiary: (Lundahl) 4,800
Corporate: (Boston Financial Institutional Tax
Credits IV), assigned to Great West Life and
Annuity Insurance Co. 1,994,025
Corporate: Allstate Unsecured Notes 15,000,000
----------
Sub-total 16,998,825
----------
INDUSTRIAL REVENUE BONDS:
Utah Subsidiary: (Zions) 1,268,333
Corporate: (Branch Banking) 3,500,000
Corporate: (Michigan Strategic Fund - Adjustable Rate
Demand Limited Obligation Revenue Bond, Series 1993) 5,500,000
----------
Sub-total 10,268,333
----------
CAPITAL LEASES:
Corporate 1,218,728
Frederick division 620,702
Utah Subsidiary 165,120
----------
Sub-total 2,004,550
----------
TOTAL OUTSTANDING INDEBTEDNESS 41,111,708
==========
</TABLE>
<PAGE> 56
THORN APPLE VALLEY, INC.
SUMMARY OF EXISTING LIENS AT 9/16/94
ANNEX III
<TABLE>
<CAPTION>
DEBT AMOUNT OF
LOCATION REFERENCE DESCRIPTION OF COLLATERAL: O/S DEBT
- ----------------- ------------- ------------------------------------------------------ -------------
<S> <C> <C> <C>
NOTES PAYABLE:
Utah Subsidiary Lundahl Land $4,800
Corporate Great West Life and Thorn Apple Valley Inc.'s interest in the Boston $1,994,025
Annuity Insurance Co. Financial Institutional Tax Credit IV limited
(tax credit IV investment) partnership.
INDUSTRIAL REVENUE BONDS:
Utah Subsidiary Zions Part of manufacturing facility. $1,268,333
Corporate Branch Banking Carolina manufacturing facility. $3,500,000
CAPITAL LEASES:
Corporate, Frederick division and Various machinery and equipment located at the
Utah Subsidiary company's various divisions and Utah subsidiary. $2,004,550
</TABLE>
<PAGE> 57
THORN APPLE VALLEY, INC.
SUMMARY OF EXISTING INVESTMENTS
ANNEX IV
<TABLE>
<CAPTION>
INVESTMENT BALANCE
FINANCIAL INSTITUTION TYPE @ 9/16/94
- -------------------------- ----------------------------------------------- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENTS
The Bank of Bloomfield Hills CD $700,000
The Bank of Bloomfield Hills CD $31,064
United Carolina Bank CD $500,000
Providence TempCash $25,000
Providence TempFund $25,000
----------
Sub-Total $1,281,064
----------
LONG-TERM INVESTMENTS
Boston Financial Institutional Tax Credits III, Limited Partnership $2,160,000
Boston Financial Institutional Tax Credits IV, Limited Partnership $2,145,000
----------
Sub-Total $4,305,000
----------
TOTAL INVESTMENTS $5,586,064
==========
</TABLE>
<PAGE> 58
ANNEX V
MATERIAL LITIGATION
1. Martin E. Levin v. Thorn Apple Valley, Inc., Case No. 89-380591-CK, Oakland
County Circuit Court. Plaintiff has brought various breach of contract
claims against Thorn Apple Valley, Inc. and claims approximately $5
million in damages. Plaintiff has requested that the parties settle the
claims but Thorn Apple Valley, Inc. believes the claims to be meritless and
presently intends to litigate this matter.
2. Tri-Miller Packing Co., Tri-Miller Transportation Company, Inc. and
Miller's Transport, Inc., have been identified as potentially responsible
parties ("PRPs") at the Ekoteck Superfund Site located in Salt Lake City,
Utah. Based on information provided to Thorn Apple Valley, Inc.,
Tri-Miller Packing, Co., Tri-Miller Transportation Company, Inc. and
Miller's Transport, Inc., allegedly contributed only a de minimus amount to
the site, if any, and are expected to have an opporunity to settle the
claim against all of them for a total payment of approximately $100,000.
<PAGE> 59
ANNEX VI
MATERIALS PROVIDED TO PURCHASER
None.
<PAGE> 60
ANNEX VII
ENVIRONMENTAL DISCLOSURE
Tri-Miller Packing Co., Tri-Miller Transportation Company, Inc. and
Miller's Transport Inc., have been identified as potentially responsible
parties ("PRPs") at the Ekoteck Superfund Site located in Salt Lake City, Utah.
Based on information provided to Thorn Apple Valley, Inc., Tri-Miller Packing,
Co., Tri-Miller Transportation Company, Inc. and Miller's Transport, Inc.,
allegedly contributed only a de minimus amount to the site, if any, and are
expected to have an opporunity to settle the claim against all of them for a
total payment of approximately $100,000.
<PAGE> 61
EXHIBIT A
THORN APPLE VALLEY, INC.
8.42% SENIOR NOTE
Due October 1, 2003
THIS NOTE MAY BE SUBJECT TO A HOME OFFICE PAYMENT AGREEMENT AND
ACCORDINGLY ANY PROSPECTIVE PURCHASER SHOULD FIRST VERIFY THE UNPAID PRINCIPAL
AMOUNT WITH THE COMPANY.
<TABLE>
<S> <C> <C>
Registered Note No. R-__ October , 1994
$_______________
</TABLE>
THORN APPLE VALLEY, INC., a Michigan corporation (the "Company"), for
value received, hereby promises to pay to ________________________ or
registered assigns, on the first day of October, 2003, the principal amount of
______________ Dollars ($__________) and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the principal amount from time to
time remaining unpaid hereon at the rate of eight and forty-two hundredths
percent (8.42%) per annum from the date hereof until maturity, payable on the
first day of April and October in each year, commencing April 1, 1995, and at
maturity, and to pay interest on overdue principal, premium and (to the extent
legally enforceable) on any overdue installment of interest at the greater of
(a) the rate of interest publicly announced from time to time by Harris Trust
and Savings Bank (or its successors or assigns) as its prime rate plus two
percent (2%) or (b) ten and forty-two hundredths percent (10.42%) per annum
after maturity or the due date thereof, whether by acceleration or otherwise,
until paid. Payments of the principal of, the premium, if any, and interest on
this Note shall be made in lawful money of the United States of America in the
manner and at the place provided in Section 2.5 of the Note Agreement
hereinafter defined.
This Note is issued under and pursuant to the terms and provisions of
a Note Agreement, dated as of October 1, 1994, entered into by the Company with
the Purchaser named in Schedule I thereto (the "Note Agreement"), and this Note
and any holder hereof are entitled to all of the benefits and are bound by the
terms provided for by such Note Agreement or referred to therein. The
provisions of the Note Agreement are incorporated in this Note to the same
extent as if set forth at length herein.
-51-
<PAGE> 62
This Note has not been registered under the Securities Act as provided
in the Note Agreement, any transfer is subject to compliance with the terms of
the Note Agreement and upon surrender of this Note for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder hereof or its attorney duly authorized in
writing, a new Note for a like unpaid principal amount will be issued to, and
registered in the name of, the transferee upon the payment of the taxes or
other governmental charges, if any, that may be imposed in connection
therewith. The Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
This Note may be declared due prior to its expressed maturity date.
Voluntary and other prepayments may be made hereon in the events, on the terms
and in the manner as provided in the Note Agreement.
Should the indebtedness represented by this Note or any part thereof
be collected in any proceeding provided for in the Note Agreement or be placed
in the hands of attorneys for collection, the Company agrees to pay, in
addition to the principal, premium, if any, and interest due and payable
hereon, to the extent legally enforceable, all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
This Note and the Note Agreement are governed by and construed in
accordance with the laws of the State of Illinois.
THORN APPLE VALLEY, INC.
By: ______________________
Its: _____________________
-52-
<PAGE> 63
EXHIBIT B
LEGAL OPINIONS
A. The opinion of Gardner, Carton & Douglas, special counsel for
the Purchaser, shall be to the effect that:
1. The Company is a corporation organized and validly existing in
good standing under the laws of the State of Michigan, with all requisite
corporate power and authority referred to in the Agreement, to enter into and
perform the Agreement and to issue and sell the Notes.
2. The Agreement has been duly authorized by proper corporate
action on the part of the Company, has been duly executed and delivered by an
authorized officer of the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable in accordance with its terms, except to
the extent that enforcement of the Agreement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or by equitable principles, regardless of whether enforcement is sought in a
proceeding in equity or at law.
3. The Notes have been duly authorized by proper corporate action
on the part of the Company, have been duly executed and delivered by an
authorized officer of the Company and constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their terms, except
to the extent that enforcement of the Notes may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or by equitable principles, regardless of whether enforcement is sought in a
proceeding in equity or at law.
4. Based upon the representations set forth in the Agreement, the
offering, sale and delivery of the Notes do not require the registration of the
Notes under the Securities Act of 1933, as amended, nor the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
5. The issuance and sale of the Notes and compliance with the
terms and provisions of the Notes and the Agreement will not conflict with or
result in any breach of any of the provisions of the Certificate of
Incorporation or By-Laws of the Company.
The opinion of Gardner, Carton & Douglas also shall state that the opinion of
Honigman, Miller, Schwartz and Cohn, counsel for the Company, delivered to you
pursuant to the Agreement, is satisfactory in form and scope to Gardner, Carton
& Douglas, and, in their opinion, the Purchaser and it are justified in relying
thereon and shall cover such other matters relating to the sale of the Notes as
the Purchaser may reasonably request.
-53-
<PAGE> 64
B. The opinion of Honigman, Miller, Schwartz and Cohn, counsel
for the Company, shall cover all matters specified in clauses 1 through 6 set
forth above and also shall be to the effect that:
1. The Company has full corporate power and authority to conduct
the activities in which it is now engaged and own its property.
2. Each Subsidiary of the Company is a corporation duly organized
and validly existing in good standing under the laws of its jurisdiction of
incorporation, and each has all requisite corporate power and authority to
carry on its business as now conducted and own its property.
3. Each of the Company and its Subsidiaries is duly qualified or
licensed and in good standing as a foreign corporation authorized to do
business in each jurisdiction where the nature of the business transacted by it
or the character of its properties owned or leased makes such qualification or
licensing necessary except where failure to so qualify would not, individually
or in the aggregate, have a material adverse affect on its business,
properties, or condition, financial or otherwise.
4. No authorization, approval or consent of any governmental or
regulatory body is necessary or required in connection with the lawful
execution and delivery by the Company of the Agreement or the lawful offering,
issuance and sale of the Notes, and no designation, filing, declaration,
registration and/or qualification with any governmental authority is required
by the Company in connection with such offer, issuance and sale.
5. The issuance and sale of the Notes and the execution, delivery
and performance by the Company of the Agreement will not conflict with, or
result in any breach or violation of any of the provisions of, or constitute a
default under, or result in the creation of any Lien on the property of the
Company or any Subsidiary pursuant to, (i) the provisions of the Certificate of
Incorporation or other charter document of the Company or any Subsidiary or
By-laws of the Company or any Subsidiary or any loan agreement under which the
Company or any Subsidiary is bound, or other agreement or instrument to which
the Company or any Subsidiary is a party or by which any of them or their
property is bound or (ii) any law (including usury laws) or regulation, order,
writ, injunction or decree of any court or governmental authority applicable to
the Company.
6. There are no actions, suits or proceedings pending or, to the
best of such counsel's knowledge after due inquiry, threatened against, or
affecting the Company or its Subsidiaries, at law or in equity or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which are likely
to result, either individually or in the aggregate, in any material adverse
change in the business, properties, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole.
-54-
<PAGE> 65
7. All of the issued and outstanding shares of capital stock of
each Subsidiary have been duly and validly issued, are fully paid and
nonassessable and, to the knowledge of such counsel, are owned by the Company
free and clear of any Lien.
8. The issuance of the Notes and the use of the proceeds of the
sale of the Notes do not violate or conflict with Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System (12 C.F.R., Chapter II).
9. Neither the Company nor any Subsidiary is: (i) a "public
utility company" or a "holding company," or an "affiliate" or a "subsidiary
company" of a "holding company," or an "affiliate" of such a "subsidiary
company," as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended, or (ii) a "public utility" as defined in the Federal Power
Act, as amended, or (iii) an "investment company" or an "affiliated person"
thereof or an "affiliated person" of any such "affiliated person," as such
terms are defined in the Investment Company Act of 1940, as amended.
The opinion of Honigman, Miller, Schwartz and Cohn shall cover such other
matters relating to the sale of the Notes as the Purchaser may reasonably
request. With respect to matters of fact on which such opinion is based, such
counsel shall be entitled to rely on appropriate certificates of public
officials and officers of the Company and with respect to matters governed by
the laws of any jurisdiction other than the United States of America and the
State of Illinois, such counsel may rely upon the opinions of counsel deemed
(and stated in their opinion to be deemed) by them to be competent and
reliable. The opinion of Honigman, Miller, Schwartz and Cohn shall provide
that such opinion may be relied upon by the Purchaser and its counsel and (i)
in connection with enforcement of obligations of the Company under the Notes
and the Note Agreement, (ii) in response to a subpoena or other legal process,
(iii) as otherwise required by applicable law or regulation or (iv) in
connection with the sale or transfer of any of the Notes to a subsequent
purchaser or transferee.
-55-
<PAGE> 1
EXHIBIT 10(u)
THORN APPLE VALLEY, INC.
NOTE AGREEMENT
DATED AS OF MAY 15, 1995
$42,500,000 PRINCIPAL AMOUNT
7.58% SENIOR NOTES
DUE MAY 15, 2005
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. DESCRIPTION OF NOTES AND COMMITMENT
1.1 Description of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Commitment; Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. PREPAYMENT OF NOTES
2.1 Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Optional and Other Prepayments . . . . . . . . . . . . . . . . . . . . . 2
2.3 Notice of Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Surrender of Notes on Prepayment or
Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Direct Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Allocation of Payments . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . . 5
Section 3. REPRESENTATIONS
3.1 Representations of the Company . . . . . . . . . . . . . . . . . . . . . 5
3.2 Representations of the Purchasers . . . . . . . . . . . . . . . . . . . 11
Section 4. CLOSING CONDITIONS
4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . 12
4.2 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 13
4.5 Legality of Investment . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6 Private Placement Number . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Accountant's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Consummation of Wilson Acquisition . . . . . . . . . . . . . . . . . . 13
4.10 Receipt of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5. INTERPRETATION OF AGREEMENT
5.1 Certain Terms Defined . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.3 Valuation Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Direct or Indirect Actions . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 6. AFFIRMATIVE COVENANTS
6.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.3 Taxes, Claims for Labor and Materials . . . . . . . . . . . . . . . . . . 23
6.4 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Maintenance of Records . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Financial Information and Reports . . . . . . . . . . . . . . . . . . . . 23
6.7 Inspection of Properties and Records . . . . . . . . . . . . . . . . . . . 26
6.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Acquisition of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.11 Required Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.12 NAIC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7. NEGATIVE COVENANTS
7.1 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.3 Subsidiary Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Fixed Charge Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.6 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Sale and Lease-Back Transaction . . . . . . . . . . . . . . . . . . . . . 33
7.10 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Nature of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3 Annulment of Acceleration of Notes . . . . . . . . . . . . . . . . . . . . 35
8.4 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Conduct No Waiver; Collection Expenses . . . . . . . . . . . . . . . . . . 36
8.6 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.7 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 9. AMENDMENTS, WAIVERS AND CONSENTS
9.1 Matters Subject to Modification . . . . . . . . . . . . . . . . . . . . 37
9.2 Solicitation of Holders of Notes . . . . . . . . . . . . . . . . . . . . 37
9.3 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE
AND REPLACEMENT
10.1 Form of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Note Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.3 Issuance of New Notes upon Exchange
or Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.4 Replacement of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11. MISCELLANEOUS
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.3 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . 39
11.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.5 Law Governing; Consent to Jurisdiction . . . . . . . . . . . . . . . . . 40
11.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.8 Reliance on and Survival of Provisions . . . . . . . . . . . . . . . . . 40
11.9 Integration and Severability . . . . . . . . . . . . . . . . . . . . . . 41
Annex I: Subsidiaries
Annex II: Existing Indebtedness
Annex III: Description of Liens
Annex IV: Existing Investments
Annex V: Material Litigation
Annex VI: Materials Provided to Purchasers
Annex VII: Environmental Disclosure
Exhibit A: Form of 7.58% Senior Note, Due May 15, 2005
Exhibit B: Legal Opinions
</TABLE>
(iii)
<PAGE> 5
THORN APPLE VALLEY, INC.
NOTE AGREEMENT
Dated as of May 15, 1995
To the Purchasers Named
in Schedule I Hereto
Ladies and Gentlemen:
THORN APPLE VALLEY, INC., a Michigan corporation (the "Company"),
agrees with you as follows:
Section 1. DESCRIPTION OF NOTES AND COMMITMENT
1.1 Description of Notes. The Company has authorized the issuance
and sale of $42,500,000 aggregate principal amount of its Senior Notes, to be
dated the date of issuance thereof, to bear interest from such date at the rate
of 7.58% per annum prior to maturity, payable semi-annually on the fifteenth
day of May and November of each year, commencing November 15, 1995, and at
maturity, to bear interest on overdue principal (including any overdue required
or optional prepayment), premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest at the greater of (i) the
rate of interest publicly announced from time to time by Harris Trust and
Savings Bank (or its successors or assigns) as its prime rate plus two percent
(2%) or (ii) 9.58% per annum, to be expressed to mature on May 15, 2005 and to
be substantially in the form attached as Exhibit A. The term "Notes" as used
herein shall include each Note delivered pursuant to this Note Agreement (the
"Agreement") and each Note delivered in substitution or exchange therefor and,
where applicable, shall include the singular number as well as the plural. Any
reference to you in this Agreement shall in all instances be deemed to include
any nominee of yours or any separate account on whose behalf you are purchasing
Notes. You are sometimes referred to herein as the "Purchaser" and, together
with the other Purchasers, as the "Purchasers."
1.2 Commitment; Closing Date. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to you, and you agree to purchase
from the Company, Notes in the aggregate principal amount set forth opposite
your name in the attached Schedule I at the price set forth in Section I at a
price of 100% of the principal amount thereof.
Delivery of and payment for the Notes shall be made at the offices of
Gardner, Carton & Douglas, 321 North Clark Street, Quaker Tower, Chicago,
Illinois 60610, at 9:00 a.m., Chicago Time, on May 30, 1995, or at such later
time or on such later date, as may be mutually agreed
<PAGE> 6
upon by the Company and the Purchasers (the "Closing Date"). The Notes will be
delivered to you in fully registered form, issued in your name or in the name
of your nominee. Delivery of the Notes to you on the Closing Date shall be
against payment of the purchase price thereof in federal funds or other funds
in U.S. dollars immediately available at Bank of New York, A.B.A. No.
021000018, for deposit in the account of Rabobank, New York, Account No.
80926002533, for the credit of Account No. 80181, Reference: Escrow Account -
Thorn Apple Valley. The deposit and release of such funds shall be in
accordance with the terms and provisions of an Escrow Agreement by and between
the Company, the Purchasers and Rabobank Nederlands as Escrow Agent. If on the
Closing Date the Company shall fail to tender the Notes to you, you shall be
relieved of all remaining obligations under this Agreement. Nothing in the
preceding sentence shall relieve the Company of any liability occasioned by
such failure to deliver the Notes.
Section 2. PREPAYMENT OF NOTES
2.1 Required Prepayments. In addition to payment of all
outstanding principal of the Notes at maturity and regardless of the principal
amount of Notes which may be outstanding from time to time, the Company shall
prepay and there shall become due and payable on May 15 in each year,
$6,071,429 of the principal amount of the Notes or such lesser amount as would
constitute payment in full on the Notes, commencing May 15, 1999 and ending May
15, 2004 inclusive, with the remaining principal payable in respect of the
Notes on May 15, 2005. Each such prepayment shall be at a price of 100% of the
principal amount prepaid, together with interest accrued thereon to the date of
prepayment.
2.2 Optional and Other Prepayments. (a) Upon notice as provided
in Section 2.3, the Company may prepay the Notes, in whole or in part, at any
time, in an amount of not less than $1,000,000 or in integral multiples of
$100,000 in excess thereof (or the remaining principal amount of the Notes) at
a price of (i) 100% of the principal amount to be prepaid, plus interest
accrued thereon to the date of prepayment, if the Reinvestment Yield, on the
applicable Determination Date, equals or exceeds the interest rate payable on
or in respect of the Notes, or (ii) 100% of the principal amount to be prepaid,
plus interest accrued thereon to the date of prepayment, plus a premium, if the
Reinvestment Yield, on such Determination Date, is less than the interest rate
payable on or in respect of the Notes. The premium shall equal (x) the
aggregate present value of the amount of principal being repaid (taking into
account the manner of application of such prepayment required by Section
2.2(c)) and the present value of the amount of interest (exclusive of interest
accrued to the date of prepayment) which would have been payable in respect of
such principal absent such prepayment, determined by discounting (semi-annually
on the basis of a 360-day year composed of twelve 30-day months) each such
amount utilizing an interest factor equal to the Reinvestment Yield, less (y)
the principal amount to be prepaid.
(b) In the event that the Company shall have knowledge of any
proposed Change of Control, the Company will give written notice (the "Proposed
Change of Control Notice") of such fact to each of the Noteholders. The
Proposed Change of Control Notice shall be delivered
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<PAGE> 7
promptly upon receipt of such knowledge by the Company and shall describe the
facts and circumstances of such proposed Change of Control in reasonable
detail. In the event that the Change of Control described in the Proposed
Change of Control Notice or any other Change of Control shall occur, the
Company will give written notice (the "Company Notice") of such fact to the
Noteholders. The Company Notice shall be delivered promptly and in any event
no later than five Business Days following the occurrence of any Change of
Control. The Company Notice shall (i) describe the facts and circumstances of
such Change of Control in reasonable detail, (ii) make reference to this
Section 2.2(b) and the right of the Noteholders to require payment on the terms
and conditions provided for in this Section 2.2(b), (iii) offer in writing to
prepay the outstanding Notes at a price of 100% of the principal amount to be
prepaid, plus interest accrued thereon to the date of prepayment and (iv)
specify a date for such prepayment, which prepayment date shall be not earlier
than 10 days or later than 20 days after the expiration of the 15-day period
provided in the immediately succeeding sentence (the "Change of Control
Prepayment Date"). Each Noteholder shall have the right to reject such offer
and not require payment of the Notes held by such Noteholder by written notice
to the Company (the "Noteholder Notice") given within 15 days following receipt
of the Company Notice. Failure by any Noteholder to deliver the notice
described in the preceding sentence shall be deemed to constitute acceptance of
the Company's offer to prepay. The Company shall, on each Change of Control
Prepayment Date, make payment on all Notes held by Noteholders who have
accepted such offer of prepayment at a price of 100% of the principal amount to
be prepaid, plus interest accrued thereon to the date of prepayment.
Without limiting any of the foregoing, notwithstanding any failure on
the part of the Company to give the Company Notice herein required as a result
of the occurrence of a Change of Control, each Noteholder shall have the right
to require the Company to prepay, and the Company will prepay, such
Noteholder's Notes at any time after such Noteholder has actual knowledge of
any Change of Control. Notice of any required prepayment pursuant to this
Section 2.2(b) shall be delivered by any Noteholder which was entitled to, but
did not receive, such Company Notice to the Company within sixty days after
such Noteholder has actual knowledge of such Change of Control. On the date
(the "Delayed Prepayment Date") designated in such Noteholder's Notice (which
shall be not earlier than 20 days nor later than 45 days after the date of such
Noteholder's Notice), the Company shall prepay in full all Notes held by such
Noteholder at a price of 100% of the principal amount prepaid, plus interest
accrued thereon to the date of prepayment. If any Noteholder gives any notice
pursuant to this paragraph, the Company shall give a Company Notice within one
Business Day of receipt of such notice and identify the Delayed Prepayment Date
to all other Noteholders and each of such other Noteholders shall then and
thereupon have the rights with respect to the prepayment of its Notes as set
forth in this Section 2.2(b); provided that the date for prepayment of such
other Noteholder's Notes shall be the Delayed Prepayment Date.
(c) Any optional prepayment pursuant to Section 2.2(a) or Section
2.2(b) or optional repurchase of less than all of the Notes outstanding shall
be applied, to reduce on a pro rata basis the prepayments and payment at
maturity required by Section 2.1.
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<PAGE> 8
(d) Except as provided in this Section 2.2, the Notes shall not be
prepayable in whole or in part.
2.3 Notice of Prepayments. The Company shall give notice of any
optional prepayment of the Notes pursuant to Section 2.2(a) to each holder of
the Notes not less than 30 days nor more than 60 days before the date fixed for
prepayment, specifying (i) such date, (ii) the principal amount of the holder's
Notes to be prepaid on such date, and an estimate of the premium, if any,
payable with respect thereto and the details of the calculations used to
determine the amount of such premium, (iii) the Determination Date as of which
the premium, if any, will be calculated and (iv) the accrued interest
applicable to the prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes specified in such notice, together with
the premium, if any, and accrued interest thereon shall become due and payable
on the prepayment date.
The Company also shall give notice to each holder of the Notes by
telecopy, telegram, telex or other same-day written communication (and the
Company shall solicit telephonic confirmation of receipt of such notice), as
soon as practicable but in any event not later than the Business Day prior to
the prepayment date, of the premium, if any, applicable to such prepayment and
the details of the calculations used to determine the amount of such premium.
2.4 Surrender of Notes on Prepayment or Exchange. Subject to
Section 2.5, upon any partial prepayment of a Note pursuant to this Section 2
or partial exchange of a Note pursuant to Section 10.3, such Note may, at the
option of the holder thereof, (i) be surrendered to the Company pursuant to
Section 10.3 in exchange for a new Note equal to the principal amount remaining
unpaid on the surrendered Note, or (ii) be made available to the Company for
notation thereon of the portion of the principal so prepaid or exchanged. In
case the entire principal amount of any Note is prepaid or exchanged, such Note
shall, following such prepayment or exchange, be surrendered to the Company for
cancellation and shall not be reissued, and no Note shall be issued in lieu of
such Note.
2.5 Direct Payment. Notwithstanding any other provision contained
in the Notes or this Agreement, the Company will pay all sums by 11:00 a.m.
Central Time, becoming due on each Note held by you or any subsequent
Institutional Holder by wire transfer of immediately available federal funds to
such account as you or such subsequent Institutional Holder have designated in
Schedule I, or as you or such subsequent Institutional Holder may otherwise
designate by notice to the Company, in each case without presentment and
without notations being made thereon, except that any such Note so paid or
prepaid in full shall, after payment thereof, be surrendered to the Company for
cancellation. Any wire transfer shall identify such payment in the manner set
forth in Schedule I and shall identify the payment as principal, premium, if
any, and/or interest. You and any subsequent Institutional Holder of a Note to
which this Section 2.5 applies agree that, before selling or otherwise
transferring any such Note, you or it will make a notation thereon of the
aggregate amount of all payments of principal theretofore made and of the date
to which interest has been paid.
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<PAGE> 9
2.6 Allocation of Payments. Except in the case of a prepayment
pursuant to Section 2.2(b), if less than the entire principal amount of all the
Notes outstanding is to be paid, the Company will prorate the aggregate
principal amount to be paid among the outstanding Notes in proportion to the
unpaid principal.
2.7 Payments Due on Saturdays, Sundays and Holidays. In any case
where the date of any required prepayment of the Notes or any scheduled
interest payment date on the Notes or the date fixed for any other payment of
any Note or exchange of any Note is not a Business Day, then such payment,
prepayment or exchange need not be made on such scheduled date but may be made
on the next succeeding Business Day (with interest accrued to the actual
payment date), with the same force and effect as if made on the due date.
Section 3. REPRESENTATIONS
3.1 Representations of the Company. As an inducement to, and as
part of the consideration for, your purchase of the Notes pursuant to this
Agreement, the Company represents and warrants to you as follows:
(a) Corporate Organization and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan, has all requisite corporate power and authority
to own and operate its properties, to carry on its business as now conducted
and as presently proposed to be conducted, to enter into and perform the
Agreement and to issue and sell the Notes as contemplated in the Agreement.
(b) Qualification to Do Business. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction where the nature of the business transacted by it
or the character of its properties owned or leased makes such qualification or
licensing necessary, except where the failure to be so licensed or qualified or
in good standing would not, individually or in the aggregate, materially and
adversely affect the condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole.
(c) Subsidiaries. The Company has no Subsidiaries, as defined in
Section 5.1, except those listed in Annex I, which correctly sets forth the
jurisdiction of incorporation and the percentage of the outstanding Voting
Stock of each Subsidiary which is owned, of record or beneficially, by the
Company and/or one or more Subsidiaries. Each Subsidiary has been duly
organized, is validly existing and is in good standing under the laws of its
jurisdiction of incorporation and is duly licensed or qualified and in good
standing as a foreign corporation in each other jurisdiction where the nature
of the business transacted by it or the character of its properties owned or
leased makes such qualification or licensing necessary, except where the
failure to be so licensed or qualified or in good standing would not,
individually or in the aggregate, materially and adversely affect the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole. A list of Non-Operating Subsidiaries and a list of those
jurisdictions wherein each Subsidiary is qualified to do business is set forth
in Annex I. Each Subsidiary has full corporate power and authority to own and
operate its properties and to carry
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<PAGE> 10
on its business as now conducted and as presently proposed to be conducted.
The Company and each Subsidiary have good and marketable title to all of the
shares they purport to own of the capital stock of each Subsidiary, free and
clear in each case of any lien or encumbrance, and all such shares have been
duly issued and are fully paid and nonassessable. The Non-Operating
Subsidiaries have no assets and no operations of a material nature.
(d) Financial Statements. The consolidated balance sheets of the
Company and its Subsidiaries as of May 27, 1994, May 28, 1993, May 29, 1992,
May 31, 1991 and May 25, 1990, and the related consolidated statements of
income, shareholders' equity and cash flows for the years ended May 27, 1994,
May 28, 1993, May 29, 1992, May 31, 1991 and May 25, 1990, accompanied by the
report and unqualified opinion of Laventhol and Horwath for the fiscal year
ended May 25, 1990 and Coopers & Lybrand for all subsequent fiscal years,
independent certified public accountants, copies of which have heretofore been
delivered to you were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise noted therein) and present fairly the consolidated financial
condition and consolidated results of operations and cash flows of the Company
and its Subsidiaries for and as of the end of each of such years. The
unaudited consolidated balance sheets of the Company and its Subsidiaries as of
March 3, 1995 and the related unaudited consolidated statements of income,
shareholders' equity and cash flows for the forty weeks ended March 3, 1995 and
March 4, 1994, copies of which have heretofore been delivered to you, were
prepared in accordance with generally accepted accounting principles and
present fairly the consolidated financial condition of the Company and its
Subsidiaries as of such dates and the consolidated results of their operations
for the periods then ended, subject to customary and other year-end audit
adjustments.
(e) No Contingent Liabilities or Adverse Changes. Neither the
Company nor any of its Subsidiaries had, as of the respective dates of the
financial statements described in the foregoing paragraph (d) of this Section
3.1, any contingent liabilities which are material to the Company and its
Subsidiaries taken as a whole other than as indicated on the financial
statements described in the foregoing paragraph (d) of this Section 3.1, and
since May 27, 1994, there have been no material adverse changes in the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole.
(f) No Pending Litigation or Proceedings. Except as set forth in
Annex V hereto, there are no actions, suits or proceedings pending or
threatened against or affecting the Company or any of its Subsidiaries, at law
or in equity or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined against the Company or any
Subsidiary, might result, either individually or in the aggregate, in any
material adverse change in the business, Properties, profits and prospects,
operations or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or on the Company's ability to perform its
obligations under this Agreement or the Notes.
(g) Compliance with Law. (i) Neither the Company nor any of its
Subsidiaries is: (x) in default with respect to any order, writ, injunction or
decree of any court to which it is a
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<PAGE> 11
named party; or (y) in default under any law, rule, regulation, approval,
ordinance or order, relating to its or their respective businesses, the
sanctions and penalties resulting from which defaults described in clauses (x)
and (y), if applied individually or in the aggregate, might have a material
adverse effect on the business, Properties, profits and prospects, operations,
assets or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole, or on the Company's ability to perform its
obligations under this Agreement or the Notes.
(ii) Neither the Company nor any Subsidiary nor any
Affiliate of the Company is an entity defined as a "designated national" within
the meaning of the Foreign Assets Control Regulations, 31 C.F.R. Chapter V, or
for any other reason, subject to any restriction or prohibition under, or is in
violation in any material respect of, any Federal statute or Presidential
Executive Order, or any rules or regulations of any department, agency or
administrative body promulgated under any such statute or Order, concerning
trade or other relations with any foreign country or any citizen or national
thereof or the ownership or operation of any property.
(h) Pension Reform Act of 1974. The Internal Revenue Service has
issued a determination that each "employee pension benefit plan," as defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), established, maintained or contributed to by the Company
or any Subsidiary has been qualified under Section 401(a) and related
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
that each related trust or custodial account is exempt from taxation under
Section 501(a) of the Code. All Plans of the Company or any Subsidiary comply
in all material respects with ERISA and other applicable laws. There exist
with respect to the Company or any Subsidiary no "multi-employer plans," as
defined in the Multi-employer Pension Plan Amendments Act of 1980, for which a
material withdrawal or termination liability may be incurred. There exist with
respect to all Plans or trusts established or maintained by the Company or any
Subsidiary: (i) no material accumulated funding deficiency within the meaning
of ERISA; (ii) no termination of any Plan or trust which would result in any
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or any
"reportable event," as that term is defined in ERISA, which is likely to
constitute grounds for termination of any Plan or trust by the PBGC; and (iii)
no "prohibited transaction," as that term is defined in ERISA, which is likely
to subject any Plan, trust or party dealing with any such Plan or trust to any
material tax or penalty on prohibited transactions imposed by Section 4975 of
the Code. The present value of vested benefits under Plans of the Company and
its Subsidiaries does not materially exceed the value of Plan assets. The
Company and its Subsidiaries are in full compliance with all filing
requirements of ERISA.
(i) Title to Properties. The Company and each Subsidiary has (i)
good title in fee simple or its equivalent under applicable law to all the real
property owned by it which is material to the business, Properties, profits and
prospects, operations or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole and (ii) good title to all other Property
owned by it which is material to the business, Properties, profits and
prospects, operations or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole, in each case free from all Liens except (x)
those securing Indebtedness of the Company or
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<PAGE> 12
a Subsidiary, which are listed in the attached Annex II and Annex III and (y)
other Liens that would be permitted pursuant to Section 7.5.
(j) Leases. The Company and each Subsidiary enjoy peaceful and
undisturbed possession under all leases under which the Company or such
Subsidiary is a lessee or is operating which are material to the business,
Properties, profits and prospects, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole. None of such
leases contains any provision which might materially and adversely affect the
operation or use of the property so leased. All of such leases are valid and
subsisting and neither the Company nor any Subsidiary is in default with
respect to any leases which are material, individually or in the aggregate, to
the business, Properties, profits and prospects, operations or condition,
financial or otherwise, of the Company and its Subsidiaries taken as a whole or
on the Company's ability to perform its obligations under this Agreement or the
Notes.
(k) Franchises, Patents, Trademarks and Other Rights. The Company
and each Subsidiary have all franchises, permits, approvals, validations,
licenses and other authority, necessary to carry on their businesses as now
being conducted and as proposed to be conducted, and none are in default under
any of such franchises, permits, approvals, validations, licenses or other
authority which are, individually or in the aggregate, material to their
businesses, Properties, profits and prospects, operations or condition,
financial or otherwise or on the Company's ability to perform its obligations
under this Agreement or the Notes. The Company and each Subsidiary own or
possess all patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect to the foregoing necessary for the present
conduct of their businesses, without any known conflict with the rights of
others which, if determined against the Company or any Subsidiary, might
result, either individually or in the aggregate, in any material adverse change
in their business, Properties, profits and prospects, operations or condition,
financial or otherwise of the Company and its Subsidiaries taken as a whole or
on the Company's ability to perform its obligations under this Agreement or the
Notes.
(l) Status of Notes and Sale of Notes. This Agreement and the
Notes have been duly authorized on the part of the Company and will constitute,
when executed and delivered, the legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, except to the extent that
enforcement of this Agreement and the Notes may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or by equitable principles, regardless of whether enforcement is sought in
equity or at law. The sale of the Notes and compliance by the Company with all
of the provisions of this Agreement and of the Notes (i) are within the
corporate powers of the Company, (ii) have been duly authorized by proper
corporate action and (iii) are legal, will not violate any provisions of any
law or regulation or order of any court, governmental authority or agency and
will not result in any breach of any of the provisions of, or constitute a
default under, or result in the creation of any Lien on any property of the
Company or any Subsidiary under the provisions of, any charter document,
by-law, loan agreement or other material agreement or instrument to which the
Company or any Subsidiary is a party or by which any of them or their property
may be bound. With respect solely to matters of federal, state and local
securities law, the Company has relied in making its
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<PAGE> 13
representations in this paragraph (l) in part upon representations of the
Purchasers in this Agreement.
(m) No Defaults; Outstanding Indebtedness. No event has occurred
and no condition exists which, upon the execution of this Agreement or the
issuance of the Notes, would constitute an Event of Default, or with the lapse
of time or the giving of notice or both would become an Event of Default, under
this Agreement. Neither the Company nor any Subsidiary is in default under any
charter document, by-law, loan agreement or other material agreement or
material instrument to which it is a party or by which it or its property may
be bound, nor has the Company or any Subsidiary obtained any waivers with
respect to any such defaults under any loan agreements or other agreements or
instruments. A summary of all of the outstanding Indebtedness, the current
outstanding principal amount of which exceeds $100,000 of the Company and its
Subsidiaries, is attached hereto as Annex II.
(n) Governmental Consent. Neither the nature of the Company or
any of its Subsidiaries, their respective businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstances in connection with the offer, issue, sale or
delivery of the Notes is such as to require a consent, approval or
authorization of, or withholding of objection on the part of, or filing,
registration or qualification with, any governmental authority on the part of
the Company in connection with the execution and delivery of this Agreement or
the offer, issue, sale or delivery of the Notes. The Company has obtained all
consents, approvals, authorizations or withholdings of objections on the part
of any governmental authority necessary to consummate the Wilson Acquisition.
With respect to solely matters of federal, state and local securities law, the
Company has relied in making its representations in this paragraph (n) in part
upon representations of the Purchasers in this Agreement.
(o) Taxes. All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have been filed, and all taxes, assessments,
fees and other governmental charges upon the Company or any Subsidiary, or upon
any of their respective properties, income or franchises, which are due and
payable, have been paid timely or within appropriate extension periods or are
being contested in good faith by appropriate proceedings, except for failures
to file for or pay certain state or local sales taxes and where such failures
would not, individually or in the aggregate, have a material adverse effect on
the Company's business, Properties, or condition, financial or otherwise. The
Company does not know of any proposed additional tax assessment against it or
any Subsidiary for which adequate reserves have not been provided for on its
books. The federal income tax liability of the Company and its Subsidiaries
has been finally determined by the Internal Revenue Service and satisfied for
all taxable years up to and including the taxable year ended May 31, 1991 and
no controversy in respect of additional taxes due since such date is pending or
to the Company's knowledge threatened, except as described on Schedule 3.1(o)
attached hereto. The provisions for taxes on the books of the Company and each
Subsidiary are, in the opinion of the Company, adequate for all open years and
for the current fiscal period.
(p) Status under Certain Statutes. Neither the Company nor any
Subsidiary is: (i) a "public utility company" or a "holding company," or an
"affiliate" or a "subsidiary company" of
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<PAGE> 14
a "holding company," or an "affiliate" of such a "subsidiary company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as
amended, or (ii) a "public utility" as defined in the Federal Power Act, as
amended, or (iii) required to be registered as an "investment company" or an
"affiliated person" thereof or an "affiliated person" of any such "affiliated
person," as such terms are defined in the Investment Company Act of 1940, as
amended.
(q) Private Offering. Neither Nat City Investments, Inc. (the
only Person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering of the Notes or any similar security
of the Company) based upon a letter dated May 12, 1995 from NatCity
Investments, Inc. to the Company nor the Company has offered any of the Notes
or any similar security of the Company for sale to, or solicited offers to buy
any thereof from, or otherwise approached or negotiated with respect thereto
with, any prospective purchaser, other than the Purchasers, each of which is an
"accredited investor" within the meaning of Regulation D under the Securities
Act, and who was offered all or a portion of the Notes at private sale for
investment. Neither the Company nor anyone acting on its authorization will
offer the Notes or any part thereof or any similar securities for issue or sale
to, or solicit any offer to acquire any of the same from, anyone so as to bring
the issuance and sale of the Notes within the provisions of Section 5 of the
Securities Act.
(r) Effect of Other Instruments. Neither the Company nor any
Subsidiary is bound by any agreement, instrument, decree, order or subject to
any charter or other corporate restriction which materially and adversely
affects the business, Properties, profits and prospects, operations, or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the Company's ability to perform its obligations under this
Agreement or the Notes.
(s) Use of Proceeds. The Company presently intends to apply the
proceeds from the sale of the Notes, together with other available funds, to
acquire Wilson. None of the transactions contemplated in this Agreement to be
performed by the Company (including, without limitation thereof, the use of the
proceeds from the sale of the Notes) will violate or result in a violation of
Section 7 of the Exchange Act, or any regulations issued pursuant thereto,
including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System (12 C.F.R., Chapter II). None of the
proceeds from the sale of the Notes will be used to purchase or carry or
refinance any borrowing the proceeds of which were used to purchase or carry
any "margin stock" or "margin security" in violation of Regulations G, T, U or
X.
(t) Condition of Property. All of the facilities of the Company
and each of its Subsidiaries which are material to the business, Properties,
profits and prospects, operations or condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole are in sound operating condition
and repair in all material respects except for such facilities being repaired
in the ordinary course of business or facilities which individually or in the
aggregate are not material to the business, Properties, profits and prospects,
operations, or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or on the Company's ability to perform its
obligations under this Agreement or the Notes.
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(u) Books and Records. The Company and each of its Subsidiaries
(i) maintain books, records and accounts in reasonable detail which accurately
and fairly reflect their respective transactions and business affairs, and (ii)
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are executed in accordance with
management's general or specific authorization and to permit preparation of
financial statements in accordance with generally accepted accounting
principles.
(v) Full Disclosure. Neither the financial statements referred to
in paragraph (d) of this Section 3.1, nor this Agreement, nor any other
document listed in Annex VI hereto furnished by the Company to you in
connection with the negotiation of the sale of the Notes, taken together,
contain any untrue statement of a material fact or omit a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances under which they were made. There is no fact known,
or which, with reasonable diligence would be known, by the Company which the
Company has not disclosed to you in writing which has a material adverse effect
on or, so far as the Company can now foresee, will have a material adverse
effect on the business, Property, profits and prospects, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the ability of the Company to perform its obligations under this
Agreement and the Notes.
(w) Environmental Compliance. Except as disclosed in Annex VII
hereto, the Company and each Subsidiary (i) is in compliance in all material
respects with all applicable environmental, transportation, health and safety
statutes and regulations, including, without limitation, regulations
promulgated under the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section Section 6901 et seq. and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et. seq.,
and (ii) has not acquired, incurred or assumed, directly or indirectly, any
material contingent liability in connection with the release or storage of any
toxic or hazardous waste or substance into the environment. Except as
discussed on Annex VII hereto, the Company has not incurred any material
liability pursuant to any environmental indemnity agreements to which it is a
party or with respect to which it has entered into a Guaranty. Except as
discussed in Annex VII hereto, the Company and its Subsidiaries have not
acquired, incurred or assumed, directly or indirectly, any material contingent
liability in connection with a release or other discharge of any hazardous,
toxic or waste material, including petroleum, on, in, under or into the
environment surrounding any property owned, used or leased by any of them.
3.2 Representations of the Purchasers. You represent, and in
entering into this Agreement the Company understands, that (i) you are an
Institutional Holder and an "accredited investor" within the meaning of
Regulation D under the Securities Act, (ii) you are acquiring Notes for the
purpose of investment for your own account and not with a view to the
distribution thereof, and (iii) you have no present intention of selling,
negotiating or otherwise disposing of the Notes; provided that the disposition
of your property shall at all times be and remain within your control, subject,
however, to compliance with Federal, state and local securities laws. You
acknowledge that the Notes have not been registered under the Securities Act or
the laws of any state and you understand that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act
or the laws of any state, if applicable, or an exemption from
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such registration is available. You have been advised that the Company does
not contemplate registering, and is not legally required to register, the Notes
under the Securities Act.
You further represent that either: (i) no part of the funds to be used
by you to purchase the Notes will constitute assets allocated to any separate
account maintained by you; or (ii) no part of the funds to be used by you to
purchase the Notes will constitute assets allocated to any separate account
maintained by you such that the application of such funds will constitute a
prohibited transaction under Section 406 of ERISA; or (iii) all or a part of
such funds will constitute assets of one or more separate accounts maintained
by you, and you have disclosed to the Company the names of such employee
benefit plans whose assets in such separate account or accounts exceed 10% of
the total assets or are expected to exceed 10% of the total assets of such
account or accounts as of the date of such purchase and the Company has advised
you in writing that the Company is not a party-in-interest nor are the Notes
employer securities with respect to the particular employee benefit plans
disclosed to the Company by you as aforesaid (for the purpose of this clause
(iii), all employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan). As used herein, the terms
"separate account," "party-in-interest," "employer securities," and "employee
benefit plan" have the meanings assigned to them in ERISA.
Section 4. CLOSING CONDITIONS
Your obligation to purchase the Notes on the Closing Date and the
Company's obligation to sell the Notes shall be subject to the performance by
the Company and the Purchasers, respectively, of their agreements hereunder,
which are to be performed at or prior to the time of delivery of the Notes, and
to the following conditions to be satisfied on or before the Closing Date:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement or otherwise made in
writing in connection herewith shall be true and correct in all material
respects on or as of the Closing Date and the Company shall have delivered to
you a certificate to such effect, dated the Closing Date and executed by the
President or the chief financial officer of the Company based upon such
officer's respective knowledge, after due inquiry.
4.2 Legal Opinions. You shall have received from Gardner, Carton
& Douglas, who is acting as your special counsel in this transaction and from
Honigman, Miller, Schwartz and Cohn, counsel for the Company, their respective
opinions, dated as of the Closing Date, in form and substance satisfactory to
you and covering substantially the matters set forth or provided in the
attached Exhibit B.
4.3 Events of Default. No event shall have occurred and be
continuing on the Closing Date which would constitute an Event of Default, as
defined in Section 8.1, or with notice or lapse of time or both would become
such an Event of Default, and the Company shall have delivered to you a
certificate to such effect, dated the Closing Date and executed by the
President
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or the chief financial officer of the Company and based on such officer's
respective knowledge, after due inquiry.
4.4 Payment of Fees and Expenses. The Company shall have paid all
fees, expenses, costs and charges, including the fees and expenses of your
special counsel, incident to the proceedings in connection with, and
transactions contemplated by, this Agreement and the Notes.
4.5 Legality of Investment. Your acquisition of the Notes shall
constitute a legal investment as the Closing Date under the laws and
regulations of each jurisdiction to which you may be subject (without resort to
any "basket" or "leeway" provision which permits the making of an investment
without restriction as to the character of the particular investment being
made), and such acquisition shall not subject you to any penalty or other
onerous condition in or pursuant to any such law or regulation.
4.6 Private Placement Number. A private placement number shall
have been obtained from Standard & Poor's Corporation.
4.7 Accountant's Letter. You shall have received, dated the
Closing Date, a letter from the Company's independent certified public
accountants acknowledging that you may rely on their opinion accompanying the
audited financial statements referred to in Section 3.1(d).
4.8 Proceedings and Documents. All proceedings taken in
connection with the transactions contemplated by this Agreement, and all
documents necessary to the consummation of such transactions shall be
satisfactory in form and substance to you and your special counsel, and you and
your special counsel shall have received copies (executed or certified as may
be appropriate) of all legal documents or proceedings which you and they may
reasonably request. You shall have provided written wire instructions,
executed by an officer of the Company, directing the Purchasers as to the bank
in which the purchase price of the Notes shall be deposited.
4.9 Consummation of Wilson Acquisition. The Wilson Acquisition
shall have been consummated.
4.10 Receipt of Proceeds. The Company shall have received the
purchase price of the Notes, specified in Section 1.2.
4.11 Waiver of Conditions. If on the Closing Date the Company
fails to tender to you the Notes to be issued on such date or if the conditions
specified in Sections 4.1 through 4.9 have not been fulfilled, you may
thereupon elect to be relieved of all further obligations under this Agreement.
Without limiting the foregoing, if the conditions specified in Sections 4.1
through 4.9 have not been fulfilled, you may waive compliance by the Company
with any such condition to such extent as you may in your sole discretion
determine. Nothing in this Section 4.11 shall operate to relieve the Company
of any of its obligations hereunder or to waive any of your rights against the
Company.
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Section 5. INTERPRETATION OF AGREEMENT
5.1 Certain Terms Defined. The terms hereinafter set forth when
used in this Agreement shall have the following meanings:
Affiliate - Any Person (other than a Wholly-Owned Subsidiary) (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company or any Subsidiary, (iii) 5% or more of the Voting Stock (or in the case
of a Person which is not a corporation, 5% of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary or (iv) which is a
director or executive officer of the Company or any Subsidiary. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
Agreement - As defined in Section 1.1.
Beneficial Ownership - As defined in Rule 13d-3 under the Exchange Act.
Business Day - A day other than a Saturday, Sunday or a legal holiday
or any other day on which banking institutions in Chicago, Illinois or Royal
Oak, Michigan are authorized by law to close.
Capitalized Lease - Any lease the obligation for Rentals with respect
to which, in accordance with generally accepted accounting principles, would be
required to be capitalized on a balance sheet of the lessee.
Change of Control - (a) The acquisition, through purchase or otherwise
(including the agreement to act in concert without more), by any Person (other
than Designated Persons) or group of Persons acting in concert (other than
Designated Persons), directly or indirectly, in one or more transactions, of
Beneficial Ownership or control of securities representing more than 30% of the
combined voting power of the Company's Voting Stock; or
(b) The distribution by the Company of cash, securities or other
properties (other than regular periodic cash dividends at a rate which is
substantially consistent with past practice, including with respect to
increases in dividends, and other than Common Stock or rights to acquire Common
Stock) to holders of capital stock (including by means of dividend,
reclassification, recapitalization or otherwise) which, together with all other
such distributions during the 365-day period preceding the date of such
distribution, has an aggregate fair market value in excess of an amount equal
to 30% of the fair market value of the Voting Stock of the Company outstanding
on the date immediately prior to such distribution.
A merger or consolidation pursuant to Section 7.7 with respect to
which the Voting Stock of the surviving corporation is more than 30% owned by a
Person or group of Persons acting in
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concert (other than Designated Persons) who did not own such Voting Stock prior
to such merger or consolidation shall constitute a "Change of Control."
Closing Date - As defined in Section 1.2.
Code - As defined in Section 3.1(h).
Company - Thorn Apple Valley, Inc., including all assets acquired in
connection with the Wilson Acquisition.
Consolidated Adjusted Net Worth - The consolidated stockholders' equity
(including preferred stock other than preferred stock which would be
characterized as Indebtedness under generally accepted accounting principles and
excluding Minority Interests) of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles, less all goodwill,
trade names, trademarks, patents, organization expense, unamortized debt
discount and expense and other similar intangibles properly classified as
intangibles in accordance with generally accepted accounting principles and
incurred after the date of consummation of the Wilson Acquisition.
Consolidated Fixed Charges - For any period, the sum of: (i)
Consolidated Interest Expense for such period and (ii) Rentals of the Company
and its Subsidiaries under all leases other than Capitalized Leases.
Consolidated Funded Debt - For any period, Funded Debt of the Company
and its Subsidiaries.
Consolidated Income Available for Fixed Charges - For any period, the
sum of (i) Consolidated Net Income for such period, plus (to the extent
deducted in determining Consolidated Net Income), (ii) all provisions for any
federal, state, or other income taxes made by the Company and its Subsidiaries
during such period and (iii) Consolidated Fixed Charges.
Consolidated Interest Expense - The interest expense (including
capitalized and noncapitalized interest, the interest component of Rentals under
Capitalized Leases and any expense associated with the termination of a swap
arrangement) of the Company and its Subsidiaries on a consolidated basis for any
period.
Consolidated Net Income - For any period, the gross revenues of the
Company and its Subsidiaries for such period less all expenses and other proper
charges (including taxes on income), determined on a consolidated basis after
eliminating earnings or losses attributable to outstanding Minority Interests,
but excluding in any event:
(a) any extraordinary or non-recurring items, any taxes on
excluded gains and any tax deductions or credits on account of any excluded
losses;
(b) the proceeds of any life insurance policy;
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(c) net earnings and losses of any Subsidiary accrued prior to the
date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired in any
manner by the Company or any Subsidiary, realized by such corporation prior to
the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Company or a Subsidiary shall have consolidated or
which shall have merged into or with the Company or a Subsidiary prior to the
date of such consolidation or merger;
(f) net earnings of any business entity (other than a Subsidiary)
in which the Company or any Subsidiary has an ownership interest unless such
net earnings shall have actually been received by the Company or such
Subsidiary in the form of cash or other equivalent distributions;
(g) any portion of the net earnings of any Subsidiary which for
any reason is unavailable for payment of dividends to the Company or any other
Subsidiary;
(h) earnings or losses resulting from any reappraisal,
re-evaluation, write-up or write-down of assets;
(i) any deferred or other credit representing any excess of the
equity in any Subsidiary at the date of acquisition thereof on or after the
Closing Date over the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any securities of the
Company or any Subsidiary; or
(k) any reversal of any contingency reserve, except to the extent
that provision for such contingency reserve shall have been made from income
arising during such period.
Consolidated Tangible Net Worth - The consolidated shareholders'
equity (including preferred stock other than preferred stock which would be
characterized as Indebtedness under generally accepted accounting principles and
excluding Minority Interests) of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles, less all goodwill,
trade names, trademarks, patents, organization expense, unamortized debt
discount and expense and other similar intangibles properly classified as
intangibles in accordance with generally accepted accounting principles.
Consolidated Total Assets - The consolidated total assets of the
Company and its Subsidiaries determined in accordance with generally accepted
accounting principles.
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<PAGE> 21
Consolidated Total Capitalization - The sum of Consolidated Adjusted
Net Worth and Consolidated Funded Debt.
Current Debt - All Indebtedness for borrowed money incurred under a
credit line or other facility providing for borrowings, the final maturity of
which Indebtedness is one year or less from the date of determination.
Default - Any event which, with the giving of notice or the passage
of time or both, would constitute an Event of Default.
Designated Persons - A "Designated Person" shall include:
(a) (i) Henry S. Dorfman, Marla Dorfman, Gayle Weiss, Carolyn
Dorfman and Joel Dorfman; (ii) the estates of the Persons set forth in clause
(i), to the extent that the beneficiaries thereof are the spouses or the lineal
descendents or the spouses of the lineal descendents of the persons set forth
in (i); and (iii) inter vivos or testamentary trusts the beneficiaries of which
are one or more Persons falling within the scope of clauses (i) or (ii) above;
(b) Joel Dorfman, Henry S. Dorfman, Louis Glazier, Michael
Rozzano, Keith Jahnke and Edward Boan;
(c) a group of Persons fifty percent or more are comprised of
Persons set forth in paragraphs (a) and/or (b) above which Persons set forth in
paragraphs (a) and/or (b) above own, in the aggregate, fifty percent or more of
the Voting Stock of the Company; or
(d) an Employee Stock Ownership Plan as defined in Section
4975(e)(7) of the Code.
Determination Date - The (i) Business Day two Business Days before the
date fixed for a prepayment pursuant to a notice required by Section 2.2(a) or
(ii) the date of any acceleration pursuant to Section 8.2.
ERISA - As defined in Section 3.1(h).
Event of Default - As defined in Section 8.1.
Exchange Act - The Securities Exchange Act of 1934, as amended, and
as it may be further amended from time to time.
Funded Debt - All Indebtedness which would, in accordance with
generally accepted accounting principles, constitute long-term Indebtedness,
including, but not limited to, (a) any Indebtedness with a maturity more than
one year after the creation of such Indebtedness, (b) without duplication, any
portion of Indebtedness described in clause (a) included in current
liabilities, (c) any Indebtedness outstanding under a revolving credit or
similar agreement providing for borrowings (and renewals and extensions
thereof) over a period of more than one year notwithstanding that any such
Indebtedness may be payable on demand or within one year
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after the creation thereof, (d) any Capitalized Lease obligation, (e) any
Guarantee with respect to Funded Debt of another Person and (f) any Current
Debt which during the twelve month period immediately preceding the date of any
determination hereunder is not reduced to $10,000,000 for a period of 30
consecutive days during such twelve month period.
Guaranties - All obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection or
obligations incurred in the ordinary course of business in connection with
repurchase agreements) of a Person guaranteeing or, in effect, guaranteeing any
Indebtedness, dividend or other obligation, of any other Person in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any property or assets constituting
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, or (y) to maintain working capital
or other balance sheet condition or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, (iii) to
lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.
Indebtedness - (i) All items of borrowings, including Capitalized
Leases, which in accordance with generally accepted accounting principles would
be included in determining total liabilities as shown on the liability side of a
balance sheet as of the date at which Indebtedness is to be determined, (ii) all
Guaranties (other than Guaranties of Indebtedness of the Company or a
Wholly-Owned Subsidiary by a Subsidiary, or of a Wholly-Owned Subsidiary by the
Company or a Subsidiary), letters of credit and endorsements (other than of
notes, bills and checks presented to banks for collection or deposit in the
ordinary course of business), in each case to support Indebtedness of other
Persons; and (iii) all items of borrowings secured by any mortgage, pledge or
Lien existing on property owned subject to such mortgage, pledge, or Lien,
whether or not the borrowings secured thereby shall have been assumed by the
Company or any Subsidiary.
Institutional Holder - Any bank, trust company, insurance company,
pension fund, mutual fund or other similar financial institution which meets
the requirements of a "qualified institutional buyer" within the meaning of
Rule 144A under the Securities Act, which is or becomes a holder of any Note.
Investments - All investments made, in cash or by delivery of
property, directly or indirectly, in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
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Lien - Any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any agreement to grant any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to file any financing statement under
the Uniform Commercial Code of any jurisdiction in connection with any of the
foregoing.
Majority-Owned Subsidiary - When applied to a Subsidiary, any
Subsidiary 80% or more of the Voting Stock of which is owned by the Company or
a Wholly-Owned Subsidiary (other than Voting Stock required to be held as
director's qualifying stock).
Material Work Stoppage - A cessation or interruption of work by a
unified group of employees of the Company or its Subsidiaries arising from or
in connection with a labor dispute which causes Consolidated Income Available
for Fixed Charges during any quarter in which such work interruption occurs to
decline 10% or more from Consolidated Income Available for Fixed Charges for
the same fiscal quarter of the prior fiscal year.
Minority Interests - Capital stock of any Subsidiary not owned by the
Company or any Subsidiary.
Non-Operating Subsidiaries - Crown West, Inc., Gunsberg Corned Beef
Company, Miller's Transport, Inc. and Thorn Apple Valley Foreign Sales
Corporation; provided, however, that the foregoing corporations shall not be
Non-Operating Subsidiaries at any time as any of such corporations conducts
operations or owns assets of a material nature.
Noteholder - Any holder of a Note.
PBGC - As defined in Section 3.1(h).
Permitted Investments - The following Investments of the Company and
its Subsidiaries:
(a) Existing Investments described in Annex IV hereto;
(b) Investments in commercial paper maturing in 270 days or less
from the date of issuance which, at the time of acquisition by the Company or
any Subsidiary, is accorded at least an "A-1" rating by Standard & Poor's
Corporation or a "P-1" rating by Moody's Investors Service, Inc.;
(c) Investments in direct obligations of the United States of
America, or any agency thereof the obligations of which are guaranteed by the
United States of America, maturing in twelve months or less from the date of
acquisition thereof;
(d) Investments in certificates of deposit, repurchase agreements
or bankers acceptances, maturing within one year from the date of origin,
issued by a bank organized under
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the laws of the United States or any state thereof, having capital, surplus and
undivided profits aggregating at least $100,000,000;
(e) Investments in "money market" preferred stock rated "A" or
better by Standard & Poor's Corporation or by Moody's Investors Services, Inc.;
(f) Tax-exempt floating rate option tender bonds backed by an
irrevocable letter of credit issued by a bank the long-term debt rating of
which is at least "AA" by Standard & Poor's Corporation or "Aa" by Moody's
Investors Service, Inc.;
(g) Investments in Subsidiaries which operate principally in lines
of business similar to lines of business of the Company or its Subsidiaries
existing on the Closing Date;
(h) Investments in capital stock of the Company in an amount not
to exceed $20,000,000; and
(i) Investments in or commitments to purchase foreign currency;
provided that such Investment is made solely to the extent that the Company and
its Subsidiaries are obligated to make payments to other Persons in such
foreign currency.
In valuing any Investments for the purpose of applying the limitations
set forth above, such Investments shall be taken at the original cost thereof,
without allowance for any subsequent write-offs or appreciation or depreciation
therein, but less any amount repaid or recovered on account of capital or
principal.
For purposes of this definition, at any time when a corporation
becomes a Subsidiary, all investments of such corporation at such time shall be
deemed to have been made by such corporation, as a Subsidiary, at such time,
provided, however, that the Company shall have 60 days to dispose of any such
investments which are not permitted above.
Person - Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Plan - As defined in Section 3.1(h).
Property - Any real or personal or tangible or intangible asset.
Reinvestment Yield - The sum of (i) the yield set forth on page "USD"
of the Bloomberg Financial Markets Service at 11:00 a.m. Central Time on the
Determination Date opposite the maturity of the U.S. Treasury Security
corresponding to the Weighted Average Life to Maturity, rounded to the nearest
month, of the principal amount of the Notes to be prepaid, plus (ii) .50 of 1%.
If no maturity exactly corresponding to such rounded Weighted Average Life to
Maturity shall appear therein, yields for the two most closely corresponding
published maturities (one of which occurs prior and the other subsequent to the
Weighted Average Life to Maturity) shall be
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calculated pursuant to the foregoing sentence and the Reinvestment Yield shall
be interpolated from such yields on a straight-line basis (rounding in each of
such relevant periods, to the nearest month). In the event that the Bloomberg
Financial Markets Service is no longer available, Noteholders holding at least
66-2/3% of the outstanding principal amount of the Notes shall select a
replacement entity offering a comparable service.
Rentals - As of the date of any determination thereof, all fixed
payments (including all payments which the lessee is obligated to make to the
lessor on termination of the lease or surrender of the property) payable by the
Company or a Subsidiary, as lessee or sublessee under a lease of real or
personal property, but exclusive of any amounts required to be paid by the
Company or a Subsidiary (whether or not designated as rents or additional rents)
on account of maintenance, repairs, insurance, taxes, assessments, amortization
and similar charges.
Sale and Lease-Back Transaction - Any arrangement, directly or
indirectly, with any Person whereby a seller or a transferor shall sell or
otherwise transfer any real or personal property and then or thereafter lease
(whether or not a Capitalized Lease), or repurchase under an extended purchase
contract, the same or similar property from the purchaser or the transferee of
such property.
Securities Act - The Securities Act of 1933, as amended, and as it may
be further amended from time to time.
Subordinated Debt - Any Indebtedness which, by its terms, is expressly
subordinated in right of payment to the Notes.
Subsidiary - Any corporation other than a Non-Operating Subsidiary of
which more than 50% of the outstanding shares of Voting Stock are owned or
controlled by the Company.
Voting Stock - Capital stock of any class of a corporation having
ordinary voting power to vote for the election of members of the board of
directors of such corporation, or persons performing similar functions.
Weighted Average Life to Maturity - As applied to any prepayment of
principal of the Notes, at any date, the number of years obtained by dividing
(a) the then outstanding principal amount of the Notes to be prepaid into (b)
the sum of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity, or other required payment,
including payment at final maturity, foregone by such prepayment in the case of
a prepayment of the Notes by (ii) the number of years (calculated to the nearest
1/12th) which will elapse between such date and the date such payment was
scheduled to be made.
Wholly-Owned - When applied to a Subsidiary, any Subsidiary 100% of
the Voting Stock of which is owned by the Company and/or its Wholly-Owned
Subsidiaries (other than Voting Stock required to be held as director's
qualifying stock).
Wilson - Wilson Foods Division of Doskocil Companies, Inc.
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Wilson Acquisition - The acquisition by the Company of Wilson,
pursuant to the terms described in the materials listed in Annex VI hereto.
Terms which are defined in other Sections of this Agreement shall have
the meanings specified therein.
5.2 Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with
generally accepted accounting principles in force in the United States at the
time of determination, except where such principles are inconsistent with the
requirements of this Agreement.
5.3 Valuation Principles. Except where indicated expressly to the
contrary by the use of terms such as "fair value," "fair market value" or
"market value," each asset, each liability and each capital item of any Person,
and any quantity derivable by a computation involving any of such assets,
liabilities or capital items, shall be taken at the net book value thereof for
all purposes of this Agreement. "Net book value" with respect to any asset,
liability or capital item of any Person shall mean the amount at which the same
is recorded or, in accordance with generally accepted accounting principles,
should have been recorded in the books of account of such Person, as reduced by
any reserves which have been or, in accordance with generally accepted
accounting principles, should have been set aside with respect thereto, but in
every case (whether or not permitted in accordance with generally accepted
accounting principles) without giving effect to any write-up, write-down or
write-off (other than any write-down or write-off the entire amount of which
was charged to Consolidated Net Income or to a reserve which was a charge to
Consolidated Net Income) relating thereto which was made after the date of this
Agreement.
5.4 Direct or Indirect Actions. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
Section 6. AFFIRMATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on
any Note:
6.1 Corporate Existence. The Company will maintain and preserve,
and will cause each Subsidiary to maintain and preserve, its corporate
existence and right to carry on its business and use, and cause each Subsidiary
to use, its best efforts to maintain, preserve, renew and extend all of its
rights, powers, privileges and franchise necessary to the proper conduct of its
business; provided, however, that the foregoing shall not prevent any
transaction permitted by Sections 7.7 or 7.8.
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6.2 Insurance. The Company will insure and keep insured at all
times all of its Properties and all of its Subsidiaries' properties which are
material to the business, Properties, profits and prospects, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole and which are of an insurable nature and of the character usually
insured by companies operating similar properties, against loss or damage by
fire and from other causes customarily insured against by companies engaged in
similar businesses in such amounts as are usually insured against by such
companies. The Company also will maintain for itself and its Subsidiaries at
all times with, in its reasonable business judgment, financially sound and
reputable insurers adequate insurance against loss or damage from such hazards
and risks to the person and property of others as are usually insured against
by companies operating properties similar to the properties of the Company and
its Subsidiaries.
6.3 Taxes, Claims for Labor and Materials. The Company will pay
and discharge when due, and will cause each Subsidiary to pay and discharge
when due, all taxes, assessments and governmental charges or levies imposed
upon it or its property or assets, or upon properties leased by it (but only to
the extent required to do so by the applicable lease), prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon its property or assets, provided that neither the Company
nor any Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim, the payment of which is being contested in good faith and by
proper proceedings that will stay the forfeiture or sale of any property and
with respect to which adequate reserves are maintained.
6.4 Maintenance of Properties. The Company will maintain,
preserve and keep, and will cause each Subsidiary to maintain, preserve and
keep, Properties material to the business, Properties, profits and prospects,
operations or condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole (whether owned in fee or a leasehold interest) in
good repair and working order, ordinary wear and tear excepted, and from time
to time will make all necessary repairs, replacements, renewals and additions,
to the extent such repairs, replacements, renewals and additions are, in the
reasonable business judgment of the Company, necessary and appropriate.
6.5 Maintenance of Records. The Company will keep, and will cause
each Subsidiary to keep, at all times proper books of record and account in
which full, true and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such Subsidiary, in accordance with generally accepted accounting principles
consistently applied throughout the period involved (except for such changes as
are disclosed in such financial statements or in the notes thereto and
concurred in by the independent certified public accountants), and the Company
will, and will cause each Subsidiary to, provide reasonable protection against
loss or damage to such books of record and account.
6.6 Financial Information and Reports. The Company will furnish
to you and to any other Institutional Holder the following:
(a) As soon as available and in any event within 60 days after the
end of each of the first three quarterly accounting periods of each fiscal year
of the Company, an unaudited
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consolidated balance sheet of the Company and its Subsidiaries as of the end of
such period and unaudited consolidated statements of income, shareholders'
equity and cash flows of the Company and its Subsidiaries for the periods
beginning on the first day of such fiscal year and the first day of such
quarterly accounting period and ending on the date of such balance sheet,
setting forth in comparative form the corresponding consolidated figures for
the corresponding periods of the preceding fiscal year, all in reasonable
detail prepared in accordance with generally accepted accounting principles
consistently applied throughout the period involved (except for changes
disclosed in such financial statements or in the notes thereto and concurred in
by the Company's independent certified public accountants) and certified by the
chief financial officer or chief accounting officer of the Company (i)
outlining the basis of presentation, and (ii) stating that the information
presented in such statements presents fairly the financial condition of the
Company and its Subsidiaries and the results of operations for the periods,
subject to customary and other year-end audit adjustments;
(b) As soon as available and in any event within 90 days after the
last day of each fiscal year, two copies of an audited consolidated balance
sheet of the Company and its Subsidiaries as of the end of such fiscal year and
two copies of the related audited consolidated statements of income,
shareholders' equity and cash flows for such fiscal year, in each case setting
forth in comparative form figures for the preceding fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved (except for
changes disclosed in such financial statements or in the notes thereto and
concurred in by independent certified public accountants) and accompanied by a
report unqualified as to limitations and scope (and not qualified as to "going
concern" status) as to the consolidated balance sheet and the related
consolidated statements of Coopers & Lybrand or any firm of independent public
accountants of recognized national standing reasonably acceptable to the
Noteholders and selected by the Company to the effect that such financial
statements have been prepared in conformity with generally accepted accounting
principles and present fairly, in all material respects, the financial
condition of the Company and its Subsidiaries and that the examination of such
financial statements by such accounting firm has been made in accordance with
generally accepted auditing standards;
(c) Together with the financial statements delivered pursuant to
paragraphs (a) and (b) of this Section 6.6, a certificate of the chief
financial officer or chief accounting officer, (i) to the effect that such
officer has re-examined the terms and provisions of this Agreement and that at
the date of such certificate, during the periods covered by such financial
statements and as of the end of such periods, to the knowledge of such officer,
after due inquiry, the Company and each of its Subsidiaries is not, or was not,
in default in the fulfillment of any of the terms, covenants, provisions and
conditions of this Agreement and that no Event of Default or Default is
occurring or has occurred as of the date of such certificate, during such
periods or as of the end of such periods, or if the signer is aware of any such
Default or Event of Default, he shall disclose in such statement the nature
thereof, its period of existence and what action, if any, the Company has taken
or proposes to take with respect thereto, and (ii) stating whether, to the
knowledge of such officer, after due inquiry, the Company is in compliance with
Sections 7.1 through 7.11 and setting forth, in sufficient detail, the
information and computations required to establish whether or not the Company
was in compliance with the requirements of Sections 7.1
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through 7.9 during the periods covered by the financial statements then being
furnished and as of the end of such periods;
(d) Together with the financial reports delivered pursuant to
paragraph (b) of this Section 6.6, a certificate of the independent certified
public accountants (i) stating that in making the examination necessary for
expressing an opinion on such financial statements, nothing came to their
attention that caused them to believe that there is in existence or has
occurred any Event of Default hereunder, or any Default hereunder or, if such
accountants shall have obtained knowledge of any such Event of Default or
Default, describing the nature thereof and the length of time it has existed
and (ii) acknowledging that holders of the Notes may rely on their opinion on
such financial statements;
(e) Within 15 days after the Company obtains knowledge thereof,
notice of any litigation or any governmental proceeding or investigation
pending against the Company or any Subsidiary in each case (i) in which the
damages or penalties sought exceed $2,000,000, after deducting the amount with
respect to which the Company or any Subsidiary is insured and with respect to
which the insurer has assumed responsibility in writing or (ii) which might
otherwise materially adversely affect the business, Property, operations or
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or on the Company's ability to perform its obligations under this
Agreement or the Notes;
(f) As soon as available, copies of each financial statement,
notice, report and proxy statement which the Company shall furnish to its
shareholders; copies of each registration statement and periodic report which
the Company may file with the Securities and Exchange Commission, and any other
similar or successor agency of the Federal government administering the
Securities Act, the Exchange Act or the Trust Indenture Act of 1939, as
amended; copies of each report relating to the Company or its securities which
the Company may file with any securities exchange on which any of the Company's
securities may be registered; copies of any orders in any material proceedings
to which the Company or any of its Subsidiaries is a party, issued by any
governmental agency, Federal or state, having jurisdiction over the Company or
any of its Subsidiaries; and, except at such times as the Company is a
reporting company under Section 13 or 15(d) of the Exchange Act or has complied
with the requirements for the exemption from registration under the Exchange
Act set forth in Rule 12g-3-2(b), such financial or other information as any
holder of the Notes may reasonably determine is required to permit such holder
to comply with the requirements of Rule 144A under the Securities Act in
connection with the resale by it of the Notes;
(g) Immediately upon receipt thereof, final copies of any report
as to accounting controls submitted to the Board of Directors of the Company by
independent accountants in connection with any audit of the Company or any
Subsidiary;
(h) As soon as available, a final copy of each other report
submitted to the Board of Directors of the Company or any Subsidiary by
independent accountants retained by the Company or any Subsidiary in connection
with any interim or special audit made by them of the books of the Company or
any Subsidiary; and
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(i) Such additional information as you or such other Institutional
Holder of the Notes may reasonably request concerning the Company and its
Subsidiaries.
6.7 Inspection of Properties and Records. The Company will allow,
and will cause each Subsidiary to allow, any representative of you or any other
Institutional Holder, so long as you or such other Institutional Holder holds
any Note, at your expense, to visit and inspect any of its properties, to
examine its books of record and account and to discuss its affairs, finances
and accounts with its officers and its public accountants (and by this
provision the Company authorizes such accountants to discuss with you or such
Institutional Holder the Company's affairs, finances and accounts), all at such
reasonable times and as often as you or such Institutional Holder may
reasonably request. So long as a Default or Event of Default has occurred and
is continuing, the Company agrees to pay the reasonable costs of any
inspections made pursuant to this Section 6.7.
You and each other Noteholder agrees to treat any information obtained
by such Person pursuant to this Agreement which is marked and otherwise treated
as confidential by the Company as confidential; provided, however, that nothing
herein contained shall limit or impair the right or obligation of any holder of
the Notes to disclose such information: (i) to its directors, auditors,
attorneys, employees or agents who would have access to such information in the
normal course of the performance of such Person's duties, (ii) when required by
any law, ordinance or governmental order, regulation, rule, policy,
investigation or any regulatory authority request, (iii) as may be required in
any report, statement or testimony submitted to any municipal, state,
provincial or federal regulatory body having or claiming to have jurisdiction
over such Noteholder or to the National Association of Insurance Commissioners
or similar organizations or their successors, (iv) in connection with the
enforcement of the terms and conditions of this Agreement and the Notes, (v)
which is publicly available or readily ascertainable from public sources, or
which is received by any Noteholder of the Notes from a third Person who or
which is not bound to keep the same confidential, (vi) in connection with any
proceeding, case or matter pending (or on its face purported to be pending)
before any court, tribunal, arbitration board or any governmental agency,
commission, authority, board or similar entity, (vii) to the extent necessary
in connection with any contemplated transfer of any of the Notes by a
Noteholder or (viii) to any other holder of the Notes.
6.8 ERISA. (a) The Company agrees that all assumptions and
methods used to determine the actuarial valuation of employee benefits, both
vested and unvested, under any Plan of the Company or any Subsidiary, and each
such Plan, whether now existing or adopted after the date hereof, will comply
with ERISA and other applicable laws unless such non-compliance would not have
a material adverse effect on the business, Properties, profits and prospects,
operations or conditions, financial or otherwise, or on the Company's ability
to perform its obligations under this Agreement or the Notes.
(b) The Company will not at any time permit any Plan established,
maintained or contributed to by it or any Subsidiary or "affiliate" (as defined
in Section 407(d)(7) of ERISA) to:
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(i) engage in any "prohibited transaction" as such term
is defined in Section 4975 of the Code or in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency" as such
term is defined in Section 302 of ERISA, whether or not waived; or
(iii) be terminated under circumstances which are likely to
result in the imposition of a Lien on the Property of the Company or any
Subsidiary pursuant to Section 4068 of ERISA, if and to the extent such
termination is within the control of the Company;
if the event or condition described in clauses (i), (ii) or (iii) above is
likely to subject the Company or any Subsidiary or ERISA affiliate to a
liability which, in the aggregate, is material in relation to the business,
property, operations, or condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole.
(c) Upon the request of you or any other Institutional Holder, the
Company will furnish a copy of the annual report of each Plan (Form 5500)
required to be filed with the Internal Revenue Service. Copies of annual
reports shall be delivered no later than 30 days after the later of the date
such report has been filed with the Internal Revenue Service or the date the
copy is requested.
(d) Promptly upon the occurrence thereof, the Company will give
you and each other Institutional Holder written notice of (i) a reportable
event with respect to any Plan, to the extent that PBGC has not waived the
30-day notice period with respect thereto; (ii) the institution of any steps by
the Company, any Subsidiary, any ERISA affiliate, the PBGC or any other person
to terminate any Plan; (iii) the institution of any steps by the Company, any
Subsidiary, or any ERISA affiliate to withdraw from any Plan; (iv) a prohibited
transaction in connection with any Plan; (v) any material increase in the
contingent liability of the Company or any Subsidiary with respect to any post-
retirement welfare liability; or (vi) the taking of any action by the Internal
Revenue Service, the Department of Labor or the PBGC with respect to any of the
foregoing which, in any of the events specified above, would result in any
material liability of the Company or any of its Subsidiaries.
6.9 Compliance with Laws. The Company will comply, and will cause
each Subsidiary to comply in all material respects, with all laws, rules,
regulations, judgments and orders material to the business, Properties, profits
and prospects, operations or condition, financial or otherwise, of the Company
and its Subsidiaries taken as a whole; provided, however, that the Company and
its Subsidiaries shall not be required to comply with laws, rules, regulations,
judgments and orders the validity or applicability of which are being contested
in good faith and by appropriate proceedings; provided that the failure to
comply with such laws, rules or regulations would not have a material adverse
effect on the business, Properties, operations, assets or condition, financial
or otherwise, of the Company and its Subsidiaries taken as a whole or on the
Company's ability to perform its obligations under this Agreement or the Notes.
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6.10 Acquisition of Notes. Neither the Company nor any Subsidiary
or Affiliate, directly or indirectly, will repurchase or offer to repurchase
any Notes unless the offer is made to repurchase Notes pro rata from all
holders at the same time and at the same terms. The Company will forthwith
cancel any Notes in any manner or at any time acquired by the Company or any
Subsidiary or Affiliate and such Notes shall not be deemed to be outstanding
for any of the purposes of this Agreement or the Notes.
6.11 Required Filings. The Company consents to the filing by the
Purchasers of copies of this Agreement with Standard & Poor's Corporation to
obtain a private placement number and with the National Association of
Insurance Commissioners to obtain a rating therefrom.
6.12 NAIC Filings. The Company shall, on the date it provides its
audited financial statements to the Noteholders pursuant to Section 6.6(b),
simultaneously provide such statements to the National Association of Insurance
Commissioners, Securities Valuation Office, 195 Broadway, New York, New York
10007.
Section 7. NEGATIVE COVENANTS
The Company agrees that, for so long as any amount remains unpaid on
any Note:
7.1 Net Worth. The Company will not at any time permit its
Consolidated Adjusted Net Worth to be less than $65,000,000.
7.2 Funded Debt. The Company will not, and will not permit any
Subsidiary to, create, assign, incur, guarantee or otherwise become liable for,
directly or indirectly, any Funded Debt other than
(a) Funded Debt existing on the date hereof, as set forth in Annex
II hereto;
(b) the Notes;
(c) Funded Debt owed to the Company by any Majority-Owned
Subsidiary or Funded Debt owed to any Majority-Owned Subsidiary by the Company
or Funded Debt owed by a Majority-Owned Subsidiary to another Majority-Owned
Subsidiary; and
(d) Funded Debt (including refinancings, refundings or extensions
of Funded Debt described in Annex II hereto and Current Debt deemed to
constitute Funded Debt pursuant to the definition of Funded Debt in Section
5.1), unless after giving effect thereto and the application of the proceeds
thereof, the amount of total Funded Debt of the Company and its Subsidiaries
then outstanding would not (i) from the date hereof to and including May 31,
1998, exceed sixty-two and one-half percent (62.5%) of Consolidated Total
Capitalization determined as of the end of the Company's prior fiscal quarter
and (ii) after May 31, 1998, exceed fifty-five percent (55%) of Consolidated
Total Capitalization determined as of the end of the Company's prior fiscal
quarter.
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7.3 Subsidiary Indebtedness. The Company will not at any time
permit its Subsidiaries to allow there to be outstanding Funded Debt of
Subsidiaries, which, when added to the amount of Indebtedness secured by Liens
incurred pursuant to paragraph (k) of Section 7.5 would exceed twenty percent
(20%) of Consolidated Tangible Net Worth.
7.4 Fixed Charge Ratio. The Company will not, as of the end of
any fiscal quarter, permit the ratio of Consolidated Income Available for Fixed
Charges to Consolidated Fixed Charges for the preceding twelve months to be
less than 1.50 to 1.00; provided, however, that if a Material Work Stoppage has
occurred, for a period of four fiscal quarters commencing with the quarter in
which the date of commencement of such Material Work Stoppage occurred, the
Company will not, as of the end of any fiscal quarter, permit the ratio of
Consolidated Income Available for Fixed Charges to Consolidated Fixed Charges
for the preceding 18 months to be less than 1.50 to 1.00.
7.5 Liens. The Company will not, and will not permit any
Subsidiary to, create, assume, or incur, or permit to exist, directly or
indirectly, any Lien on its properties or assets, whether now owned or
hereafter acquired, except:
(a) Liens existing on Property of the Company or any Subsidiary as
of the date of this Agreement that are described in Annex III to this
Agreement;
(b) Liens for taxes, assessments or governmental charges not then
due and delinquent and for which a penalty has not attached or the validity of
which is being contested in good faith and by proper proceedings and with
respect to which adequate reserves are maintained in accordance with generally
accepted accounting principles;
(c) Liens arising in connection with court proceedings, provided
that the execution of such Liens is effectively stayed, such Liens are being
contested in good faith and adequate reserves are maintained with respect
thereto in accordance with generally accepted accounting principles;
(d) Liens arising in the ordinary course of business and not
incurred in connection with the borrowing of money, including encumbrances in
the nature of zoning restrictions, easements, rights and restrictions of record
on the use of real Property, landlord's and lessor's liens in the ordinary
course of business, which do not, individually or in the aggregate, materially
interfere with the conduct of the business of the Company and its Subsidiaries
taken as a whole and do not materially affect the value of the Property subject
to such Liens;
(e) Construction or materialmen's or mechanic's Liens securing
obligations not overdue or, if overdue, are being contested in good faith and
by proper proceedings and with respect to which adequate reserves are
maintained in accordance with generally accepted accounting principles;
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(f) Liens in connection with worker's compensation, social
security taxes or similar charges arising in the ordinary course of business
and not incurred in connection with the borrowing of money;
(g) Liens incurred in connection with obtaining or performing
government contracts in the ordinary course of business and not incurred in
connection with the borrowing of money;
(h) Liens resulting from extensions, renewals, refinancings and
refundings of Indebtedness secured by Liens permitted by paragraph (a) above;
provided there is no increase in the outstanding principal amount of
Indebtedness secured thereby and any new Liens attached only to the same
property theretofore subsequent to such earlier Lien;
(i) Liens securing Indebtedness owed by a Majority-Owned
Subsidiary to the Company or the Company to any Majority-Owned Subsidiary or
any Majority-Owned Subsidiary to another Majority-Owned Subsidiary;
(j) (A) any Lien in property or in rights relating thereto to
secure any rights granted with respect to such Property in connection with the
provision of all or a part of the purchase price or cost of the construction of
such Property created contemporaneously with, or within 270 days after, such
acquisition or the completion of such construction (except Liens at the
Company's Ponca City, Oklahoma facility shall not be permitted), or (B) any
Lien in Property existing on such Property at the time of acquisition thereof,
whether or not the debt secured thereby is assumed by the Company or such
Subsidiary, or (C) any Lien existing in the Property of a corporation or other
person at the time such corporation or other person is acquired (whether by
purchase of stock, by merger, or consolidation or otherwise) by the Company or
a Subsidiary, or at the time of a purchase, lease or other acquisition of the
Properties of a corporation or other person by the Company or a Subsidiary;
provided that, any Liens incurred pursuant to this clause (j) shall not exceed
100% of the fair market value on the related Property at the time the Lien was
originally created; and
(k) Liens in addition to those permitted by clauses (g) through
(j) above, securing Indebtedness of the Company or any Subsidiary, provided
that at all times the sum of (x) the aggregate principal amount outstanding of
all Indebtedness secured by Liens permitted by this clause (k), plus (y) the
aggregate amount of Funded Debt of Subsidiaries then outstanding shall not
exceed 20% of Consolidated Tangible Net Worth.
In the event that the Company or any Subsidiary creates, assumes,
incurs or permits to exist any Lien not otherwise permitted by this Section
7.5, the Company will make or cause to be made provision whereby the Notes will
be secured equally and ratably with all other obligations secured by such Liens
(subject (i) to any holder of Notes having the right to decline to have its
Notes secured by such Liens and (ii) to the receipt by the Noteholders of an
opinion of counsel in form and substance satisfactory to such Noteholders to
the effect that the Notes will be secured equally and ratably with all other
obligations secured by such Liens), and in any case the Notes shall have the
benefit, to the full extent that, and with such priority as, the holders may be
entitled thereto under applicable law, of an equitable Lien on such Property
securing the Notes.
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7.6 Restricted Payments. The Company will not, except as
hereinafter provided:
(a) declare or pay any dividends, either in cash or Property, on
any shares of its capital stock of any class (except dividends or other
distributions payable solely in shares of capital stock of the Company); or
(b) directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any warrants,
rights or options to purchase or acquire any shares of its capital stock; or
(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock; or
(d) make any Investment other than a Permitted Investment; or
(e) make any payment, either directly or indirectly or through any
Subsidiary, of principal of any Subordinated Debt other than at the expressed
maturity date thereof and scheduled mandatory prepayments or redemptions
thereof in accordance with the terms in effect on the date of creation of such
Subordinated Debt;
(all such declarations, payments, purchases, redemptions, retirements,
distributions and Investments being herein collectively called "Restricted
Payments") if, after giving effect thereto (i) the Company could not incur an
additional $1.00 of Funded Debt pursuant to Section 7.2, (ii) a Default or
Event of Default would exist or (iii) the aggregate amount of all Restricted
Payments made during the period from and after May 31, 1994, to and including
the date of the Restricted Payment in question would exceed the sum of:
(x) $22,000,000, plus
(y) 60% (or minus 100% in the case of a deficit)
of Consolidated Net Income for such period (computed on a cumulative
basis for each fiscal quarter commencing after May 31, 1994 to and
including the date of making a Restricted Payment), plus
(z) the net cash proceeds from the sale or
issuance, after the date of this Agreement, of the Company's capital
stock.
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 60 days after its date of declaration.
Any dividend which complies with the provisions of this Section 7.6 on the date
of its declaration shall be deemed to comply on its date of payment, provided
that any intervening event giving rise to non-compliance is not the result of a
Restricted Payment.
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7.7 Merger or Consolidation. The Company will not, and will not
permit any Subsidiary to, merge or consolidate with any other Person, except
that:
(a) The Company may consolidate with or merge into any Person or
permit any other Person to merge into it, provided that immediately after
giving effect thereto,
(i) The Company is the successor corporation or,
if the Company is not the successor corporation, the successor
corporation is a corporation organized under the laws of a
state of the United States of America or the District of
Columbia and shall expressly assume in writing the Company's
obligations under the Notes and this Agreement, and the
surviving corporation shall furnish the holders of the Notes
an opinion of counsel in form and substance satisfactory to
such holders to the effect that the instrument of assumption
has been duly authorized, executed and delivered and
constitutes the legal, valid and binding contract and
agreement of the surviving corporation enforceable in
accordance with its terms, except as enforcement of such terms
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable
principles;
(ii) There shall exist no Event of Default or
Default; and
(iii) The Company or such successor corporation
could incur at least $1.00 of additional Funded Debt pursuant
to Section 7.2;
(b) Any Subsidiary may (i) merge into the Company or another
Majority-Owned Subsidiary or (ii) sell, transfer or lease all or any part of
its assets to the Company or to another Majority-Owned Subsidiary or (iii)
merge into any Person which, as a result of such merger, concurrently becomes a
Majority-Owned Subsidiary, provided in each such instance that there shall
exist no Event of Default or Default.
7.8 Sale of Assets. The Company will not, and will not permit any
Subsidiary to, sell, lease, transfer or otherwise dispose of any assets,
including the disposition of the stock of any Subsidiary and including any Sale
and Lease-Back Transaction (collectively, a "Disposition"), in one or a series
of transactions, other than in the ordinary course of business, to any Person,
other than the Company or a Majority-Owned Subsidiary if immediately preceding
such Disposition and after giving effect to such Disposition, (a) during any
twelve consecutive month period of the Company the aggregate book value of all
such assets sold, leased, transferred or otherwise disposed of during such
period, would exceed 10% of the Consolidated Total Assets of the Company and
its Subsidiaries determined in accordance with generally accepted accounting
principles as of the end of the Company's immediately preceding fiscal year or
(b) since the date of this Agreement, the aggregate book value of all such
assets sold, leased, transferred or otherwise disposed of would exceed 25% of
the Consolidated Total Assets of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles as of the end of the
Company's immediately preceding fiscal year; provided, however, that the
Company may, and may permit any Subsidiary to, sell, lease, transfer or
otherwise dispose of assets in
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excess of the percentages specified in subparagraphs (a) and (b) above if the
cash proceeds therefrom are (x) utilized within one year after such Disposition
to purchase or are committed to the purchase of Property of a similar nature
and of at least equivalent value or (y) used to prepay Funded Debt (except
Subordinated Debt), including the Notes, on a pro rata basis, subject to the
prepayment requirements and at the price set forth in Section 2.2(a).
7.9 Sale and Lease-Back Transaction. The Company will not, and
will not permit any Subsidiary to, effect any Sale and Lease-Back Transaction
unless such Sale and Lease-Back Transaction complies with the requirements of
Sections 7.2, 7.3, 7.7 and 7.8.
7.10 Change in Business. Neither the Company nor any Subsidiary
will engage in any business as a result of which more than thirty percent (30%)
of Consolidated Net Income will derive from businesses substantially different
from that currently conducted by them.
7.11 Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, enter into any transaction (including the
furnishing of goods or services) with an Affiliate except in the ordinary
course of business and on terms and conditions no less favorable to the Company
or such Subsidiary than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate.
Section 8. EVENTS OF DEFAULT AND REMEDIES THEREFOR
8.1 Nature of Events. An "Event of Default" shall exist if any
one or more of the following occurs:
(a) Default in the payment of interest on the Notes when due and
such default shall continue for a period of five days;
(b) Default in the payment of the principal of any of the Notes or
the premium thereon, if any, at maturity, upon acceleration of maturity or at
any date fixed for prepayment;
(c) Default shall occur (i) in the payment of the principal of,
premium, or interest on any other Indebtedness of the Company or its
Subsidiaries, aggregating in excess of $2,000,000 in principal amount as and
when due and payable (whether by lapse of time, declaration, call for
redemption or otherwise), (ii) under any mortgage, agreement or other
instrument of the Company or any Subsidiary securing such Indebtedness or under
or pursuant to which such Indebtedness aggregating in excess of $2,000,000 is
issued, (iii) under any leases other than Capitalized Leases of the Company or
any Subsidiary, with aggregate Rentals in excess of $2,000,000 or (iv) with
respect to any combination of the foregoing involving Indebtedness and/or
Rentals aggregating in excess of $2,000,000 regardless of whether such defaults
would be Events of Default hereunder; provided a notice of such default shall
have been provided to the Company by the applicable lender, lessor or
Purchasers, and any such defaults shall continue, unless waived, beyond the
period of grace, if any, allowed with respect thereto;
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<PAGE> 38
(d) Default in the observance or performance of Sections 7.1
through 7.11 and Section 8.7 of this Agreement;
(e) Default in the observance or performance of any other
condition or provision of this Agreement which is not remedied within 30 days
after the Company or any Subsidiary has knowledge of such default;
(f) Any representation or warranty made by the Company in this
Agreement, or made by the Company or any Subsidiary in any written statement or
certificate furnished by the Company or any Subsidiary in connection with the
issuance and sale of the Notes or furnished by the Company pursuant to this
Agreement, proves incorrect in any material respect as of the date of the
issuance or making thereof; provided, that if the Company or any Subsidiary
shall have given written notice to the Noteholders that any such representation
or warranty was untrue in any material respect and the Noteholders have not
declared an Event of Default within 60 days of such notice, then the
Noteholders shall be deemed to have waived any Event of Default with respect to
this paragraph (f);
(g) Any fines, penalties, judgments, writs or warrants of
attachment or any similar processes individually or in the aggregate in excess
of $2,000,000 shall be entered or filed against the Company or any Subsidiary
or against any Property or assets of either and remain unpaid, unvacated,
unbonded or unstayed (through appeal or otherwise) for a period of 30 days
after the Company or any Subsidiary receives notice thereof;
(h) The Company or any Subsidiary shall incur a "Distress
Termination" (as defined in Title IV of ERISA) of any Plan or any trust created
thereunder which results in material liability to the PBGC, the PBGC shall
institute proceedings to terminate any Plan or any trust created thereunder, or
a trustee shall be appointed by a United States District Court pursuant to
Section 4042(b) of ERISA to administer any Plan or any trust created
thereunder; or
(i) The Company or any Subsidiary shall
(i) generally not pay its debts as they become
due or admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or for
reorganization or for the adoption of an arrangement under the
Federal Bankruptcy Code, or any similar applicable bankruptcy
or insolvency law, as now or in the future amended (herein
collectively called "Bankruptcy Laws"), or an answer or other
pleading admitting or failing to deny the material allegations
of such a petition or seeking, consenting to or acquiescing in
relief provided for under the Bankruptcy Laws;
(iii) make an assignment of all or a substantial
part of its Property for the benefit of its creditors;
-34-
<PAGE> 39
(iv) seek or consent to or acquiesce in the
appointment of a receiver, liquidator, custodian or trustee of
it or for all or a substantial part of its Property;
(v) be finally adjudicated a bankrupt or
insolvent;
(vi) be subject to the entry of a court order,
which shall not be vacated, set aside or stayed within 60 days
from the date of entry, appointing a receiver, liquidator,
custodian or trustee of it or for all or a substantial part of
its Property, or entering of an order for relief pursuant to
an involuntary case, or effecting an arrangement in,
bankruptcy or for a reorganization pursuant to the Bankruptcy
Laws or for any other judicial modification or alteration of
the rights of creditors; or
(vii) be subject to the assumption of custody or
sequestration by a court of competent jurisdiction of all or a
substantial part of its Property, which custody or
sequestration shall not be suspended or terminated within 60
days from its inception.
8.2 Remedies on Default. When any Event of Default described in
paragraphs (a) through (h) of Section 8.1 has happened and is continuing, the
holder or holders of at least 30% in principal amount of the Notes then
outstanding may by notice to the Company declare the entire principal, together
with the premium set forth below, and all interest accrued on all Notes to be,
and such Notes shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
expressly waived. Notwithstanding the foregoing, when (i) any Event of Default
described in paragraphs (a) or (b) of Section 8.1 has happened and is
continuing, any holder may by notice to the Company declare the entire
principal, together with the premium set forth below, and all interest accrued
on the Notes then held by such holder to be, and such Notes shall thereupon
become, forthwith due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are expressly waived and (ii) where any
Event of Default described in paragraph (i) of Section 8.1 has happened, then
all outstanding Notes shall immediately become due and payable without
presentment, demand or notice of any kind. Upon the Notes or any of them
becoming due and payable as aforesaid, the Company will forthwith pay to the
holders of such Notes the entire principal of and interest accrued on such
Notes, plus, to the extent permitted by law, a premium in the event that the
Reinvestment Yield shall, on the Determination Date, be less than the interest
rate payable on or in respect of the Notes. Such premium shall equal (x) the
aggregate present value of the principal so accelerated and the aggregate
present value of the interest which would have been payable in respect of such
principal absent such accelerated payment, determined by discounting
(semi-annually on the basis of a 360-day year composed of twelve 30-day months)
each such amount utilizing an interest factor equal to the Reinvestment Yield,
less (y) the principal amount so accelerated.
8.3 Annulment of Acceleration of Notes. The provisions of Section
8.2 are subject to the condition that if the principal of and accrued interest
on the Notes have been declared immediately due and payable by reason of the
occurrence of any Event of Default described in
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<PAGE> 40
paragraphs (a) through (h), inclusive, of Section 8.1, the holder or holders of
70-1/2% in aggregate principal amount of the Notes then outstanding may, by
written instrument filed with the Company, rescind and annul such declaration
and the consequences thereof, provided that (i) at the time such declaration is
annulled and rescinded no judgment or decree has been entered for the payment
of any monies due pursuant to the Notes or this Agreement, (ii) all arrears of
interest upon all the Notes and all other sums payable under the Notes and
under this Agreement (except any principal, interest or premium on the Notes
which has become due and payable solely by reason of such declaration under
Section 8.2) shall have been duly paid and (iii) each and every Event of
Default shall have been cured or waived; and provided further, that no such
rescission and annulment shall extend to or affect any subsequent Default or
Event of Default or impair any right consequent thereto. For purposes of
determining whether the requisite principal amount of Notes have made or
concurred in such annulment and recission, Notes held in the name of or owned
beneficially by, the Company or any Subsidiary or any Affiliate thereof, shall
not be deemed outstanding.
8.4 Other Remedies. If any Event of Default shall be continuing,
any holder of Notes may enforce its rights by suit in equity, by action at law,
or by any other appropriate proceedings, whether for the specific performance
(to the extent permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or in aid of the exercise of any power granted in
this Agreement, and may enforce the payment of any Note held by such holder and
any of its other legal or equitable rights.
8.5 Conduct No Waiver; Collection Expenses. No course of dealing
on the part of any holder of Notes, nor any delay or failure on the part of any
holder of Notes to exercise any of its rights, shall operate as a waiver of
such rights or otherwise prejudice such holder's rights, powers and remedies.
If the Company fails to pay, when due, the principal of, premium, if any, or
the interest on, any Note, or fails to comply with any other provision of this
Agreement, the Company will pay to each holder, to the extent permitted by law,
on demand, such further amounts as shall be sufficient to cover the cost and
expenses, including but not limited to reasonable attorneys' fees, incurred by
such holders of the Notes in collecting any sums due on the Notes or in
otherwise enforcing any of their rights.
8.6 Remedies Cumulative. No right or remedy conferred upon or
reserved to any holder of Notes under this Agreement is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy given under this
Agreement or now or hereafter existing under any applicable law. Every right
and remedy given by this Agreement or by applicable law to any holder of Notes
may be exercised from time to time and as often as may be deemed expedient by
such holder, as the case may be.
8.7 Notice of Default. With respect to Events of Default or
Defaults hereunder or claimed defaults with respect to any Indebtedness other
than the Notes, the Company will give the following notices: the Company
promptly, but in any event within three Business Days, will furnish to each
holder of a Note notice in writing by overnight courier of the occurrence of an
Event of Default or a Default or receipt of a notice of a claimed default with
respect to
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<PAGE> 41
Indebtedness the principal amount of which exceeds $100,000 other than the
Notes or any other action taken by a lender with respect to any claimed default
with respect to such Indebtedness. Such notice shall specify the nature of
such Event of Default or Default or claimed default, the period of existence
thereof and what action the Company has taken or is taking or proposes to take
with respect thereto.
Section 9. AMENDMENTS, WAIVERS AND CONSENTS
9.1 Matters Subject to Modification. Any term, covenant,
agreement or condition of this Agreement may, with the consent of the Company,
be amended, or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), if the Company
shall have obtained the consent in writing of the holder or holders of at least
66-2/3% in aggregate principal amount of outstanding Notes; provided, however,
that, without the written consent of the holder or holders of all of the Notes
then outstanding, no such waiver, modification, alteration or amendment shall
be effective which will (i) change the time of payment (including any required
prepayment) of the principal of or the interest on any Note, (ii) reduce the
principal amount thereof or the premium, if any, or change the rate of interest
thereon, (iii) change any provision of any instrument affecting the preferences
between holders of the Notes or between holders of the Notes and other
creditors of the Company, or (iv) change any of the provisions of Section 6.10,
Section 8.1, Section 8.2, Section 8.3 or this Section 9.
For the purpose of determining whether holders of the requisite
principal amount of Notes have made or concurred in any waiver, consent,
approval, notice or other communication under this Agreement, Notes held in the
name of, or owned beneficially by, the Company, any Subsidiary or any Affiliate
thereof, shall not be deemed outstanding.
9.2 Solicitation of Holders of Notes. The Company will not
solicit, request or negotiate for or with respect to any proposed waiver or
amendment of any of the provisions of this Agreement or the Notes unless each
record holder of the Notes (irrespective of the amount of Notes then owned by
it) shall concurrently be informed thereof by the Company and shall be afforded
the opportunity of considering the same and shall be supplied by the Company
with sufficient information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any waiver or consent
effected pursuant to the provisions of this Section 9 shall be delivered by the
Company to each holder of outstanding Notes forthwith following the date on
which the same shall have been executed and delivered by the holder or holders
of the requisite percentage of outstanding Notes. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by
way of supplemental or additional interest, fee or otherwise, to any holder of
the Notes as consideration for or as an inducement to the entering into by any
holder of the Notes of any waiver or amendment of any of the terms and
provisions of this Agreement unless such remuneration is concurrently paid, on
the same terms, ratably to each holder of the then outstanding Notes. Any
consent made pursuant to this Section 9 by a holder of Notes that has
transferred or has agreed to transfer its Notes to the Company or any Affiliate
or has agreed to provide such written consent as a condition to such transfer
shall be void and of no force and effect except solely as to such holder, and
any
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<PAGE> 42
amendments effected or waivers granted or to be effected or granted that would
not have been or would not be so effected or granted but for such consent (and
the consents of all holders of Notes that were acquired under the same or
similar conditions) shall be void and of no force and effect, retroactive to
the date such amendment or waiver initially took or takes effect, except solely
as to such holder.
9.3 Binding Effect. Except as provided in Section 9.2, any such
amendment or waiver shall apply equally to all the holders of the Notes and
shall be binding upon them, upon each future holder of any Note and upon the
Company whether or not such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right related thereto.
Section 10. FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE
AND REPLACEMENT
10.1 Form of Notes. The Notes initially delivered under this
Agreement will be in the form of one fully registered Note in the form attached
as Exhibit A. The Notes are issuable only in fully registered form and in
denominations of at least $1,000,000 (or the remaining outstanding balance
thereof, if less than $1,000,000).
10.2 Note Register. The Company shall cause to be kept at its
principal office a register (the "Note Register") for the registration and
transfer of the Notes. The names and addresses of the holders of Notes, the
transfer thereof and the names and addresses of the transferees of the Notes
shall be registered in the Note Register. The Company may deem and treat the
person in whose name a Note is so registered as the holder and owner thereof
for all purposes and shall not be affected by any notice to the contrary, until
due presentment of such Note for registration of transfer as provided in this
Section 10.
10.3 Issuance of New Notes upon Exchange or Transfer. Upon
surrender for exchange or registration of transfer of any Note at the office of
the Company designated for notices in accordance with Section 11.2, the Company
shall execute and deliver, at its expense, one or more new Notes of any
authorized denominations pursuant to Section 10.1 requested by the holder of
the surrendered Note, each dated the date to which interest has been paid on
the Note so surrendered (or, if no interest has been paid, the date of such
surrendered Note), but in the same aggregate unpaid principal amount as such
surrendered Note, and registered in the name of such person or persons as shall
be designated in writing by such holder. Every Note surrendered for
registration of transfer shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or by its
attorney duly authorized in writing. The Company may condition its issuance of
any new Note in connection with a transfer by any Person on compliance by the
transferee of the representations required under Section 3.2 and a written
certification to said effect signed by the transferee, by Institutional Holders
on compliance with Section 2.5 and on the payment to the Company of a sum
sufficient to cover any stamp tax or other governmental charge imposed in
respect of such transfer.
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<PAGE> 43
10.4 Replacement of Notes. Upon receipt of evidence satisfactory
to the Company of the loss, theft, mutilation or destruction of any Note, and
in the case of any such loss, theft or destruction upon delivery of a bond of
indemnity in such form and amount as shall be reasonably satisfactory to the
Company or in the event of such mutilation upon surrender and cancellation of
the Note, the Company, without charge to the holder thereof, will make and
deliver a new Note, of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note. If any such lost, stolen or destroyed Note is owned by you or
any other Institutional Holder, then the affidavit of an authorized officer of
such owner setting forth the fact of loss, theft or destruction and of its
ownership of the Note at the time of such loss, theft or destruction shall be
accepted as satisfactory evidence thereof, and no further indemnity shall be
required as a condition to the execution and delivery of a new Note, other than
a written agreement of such owner (in form reasonably satisfactory to the
Company) to indemnify the Company.
Section 11. MISCELLANEOUS
11.1 Expenses. Whether or not the purchase of Notes herein
contemplated shall be consummated, the Company agrees to pay directly all
reasonable expenses in connection with the preparation, execution and delivery
of this Agreement and the transactions contemplated by this Agreement,
including, but not limited to, out-of-pocket expenses, filing fees of Standard
& Poor's Corporation in connection with obtaining a private placement number,
charges and disbursements of special counsel, photocopying and printing costs
and charges for shipping the Notes, adequately insured, to you at your home
office or at such other address as you may designate, and all similar expenses
(including the reasonable fees and expenses of counsel) relating to any
amendments, waivers or consents in connection with this Agreement or the Notes,
including, but not limited to, any such amendments, waivers or consents
resulting from any work-out, renegotiation or restructuring relating to the
performance by the Company of its obligations under this Agreement and the
Notes. The Company also agrees that it will pay and save you harmless against
any and all liability with respect to (a) placement agent fees and (b) stamp
and other documentary taxes, if any, which may be payable, or which may be
determined to be payable in connection with the execution and delivery of this
Agreement or the Notes (but not in connection with a transfer of any Notes),
whether or not any Notes are then outstanding. The obligations of the Company
under this Section 11.1 shall survive the retirement of the Notes.
11.2 Notices. Except as otherwise expressly provided herein, all
communications provided for in this Agreement shall be in writing and delivered
or sent by registered or certified mail, return receipt requested, or by
overnight courier (i) if to you, to the address set forth below your name in
Annex I, or to such other address as you may in writing designate, (ii) if to
any other holder of the Notes, to such address as the holder may designate in
writing to the Company, and (iii) if to the Company, to Thorn Apple Valley,
Inc., 18700 West Ten Mile Road, Southfield, Michigan 48075, Attention: Louis
Glazier, or to such other address as the Company may in writing designate.
11.3 Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation, (i) consents, waivers and
modifications which may hereafter be
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<PAGE> 44
executed, (ii) documents received by you at the closing of the purchase of the
Notes (except the Notes themselves), and (iii) financial statements,
certificates and other information previously or hereafter furnished to you,
may be reproduced by you by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process, and you may
destroy any original document so reproduced. The Company agrees and stipulates
that any such reproduction which is legible shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
by you in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence; provided that nothing herein contained shall preclude the Company
from objecting to the admission of any reproduction on the basis that such
reproduction is not accurate, has been altered or is otherwise incomplete.
11.4 Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
11.5 Law Governing; Consent to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois. No provision of this Agreement may be waived, changed or modified,
or the discharge thereof acknowledged, orally, except by an agreement in
writing signed by the party against whom the enforcement of any waiver, change,
modification or discharge is sought. THE COMPANY IRREVOCABLY AGREES THAT,
SUBJECT TO THE NOTEHOLDER'S SOLE AND ABSOLUTE CONSENT TO A CONTRARY
JURISDICTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING
OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR THE NOTES SHALL BE LITIGATED
ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, COUNTY OF COOK, STATE
OF ILLINOIS. THE COMPANY HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF
ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY, COUNTY AND STATE.
THE COMPANY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE
OF ANY LITIGATION BROUGHT AGAINST THE COMPANY BY THE NOTEHOLDERS IN ACCORDANCE
WITH THIS PARAGRAPH.
11.6 Headings. The headings of the sections and subsections of
this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
11.7 Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart or reproduction thereof permitted by Section
11.3.
11.8 Reliance on and Survival of Provisions. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant to this Agreement, whether or not in connection
with a closing, (i) shall be deemed to have been relied
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<PAGE> 45
upon by you, notwithstanding any investigation heretofore or hereafter made by
you or on your behalf and (ii) shall survive the delivery of this Agreement and
the Notes.
11.9 Integration and Severability. This Agreement embodies the
entire agreement and understanding between you and the Company, and supersedes
all prior agreements and understandings relating to the subject matter hereof.
In case any one or more of the provisions contained in this Agreement or in any
Note, or application thereof, shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained in this Agreement and in any Note, and any other application thereof,
shall not in any way be affected or impaired thereby.
[The rest of this page is intentionally blank.]
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<PAGE> 46
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed and delivered by their respective officer or officers
thereunto duly authorized.
THORN APPLE VALLEY, INC.
By: /s/ Louis Glazier
------------------------------------
Title: Vice President
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ Patricia W. Wilson
------------------------------------
By: /s/ Judith P. Greffin
------------------------------------
Authorized Signatories
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: /s/ John D. Cleavenger
------------------------------------
JOHN D. CLEAVENGER Counsel
By: /s/ Christopher J. Henderson
------------------------------------
CHRISTOPHER J. HENDERSON Counsel
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
By: /s/ Julie Bock
------------------------------------
JULIE BOCK
Manager
Private Placement Investments
By: /s/ Wayne T. Hoffmann
------------------------------------
WAYNE T. HOFFMAN
Vice President
Private Placement Investments
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<PAGE> 47
SCHEDULE I
Principal Amount of Notes to Be Purchased
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount of Notes
- ----------------------------- -------------------------
<S> <C>
Allstate Life Insurance Company $7,500,000
3075 Sanders Road, STE G4A
Northbrook, Illinois 60062-7127
Attn: Investment Operations
Private Placements
Telephone: (708) 402-8709
Telecopy: (708) 402-7331
</TABLE>
All notices of scheduled payments and written confirmations of such
wire transfer should be sent to the address above. All payments by
Fedwire transfer of immediately available funds, identifying the name
of the Issuer (and the Credit, if any), the Private Placement Number
preceded by "DPP" and the payment as principal, interest or premium,
in the format as follows:
[BBK = Harris Trust and Savings Bank
ABA #071000288
BNF = Allstate Life Insurance Company
Collection Account #168-117-0
ORG = Thorn Apple Valley, Inc.
OBI = DPP (PPN: 885184 A# 8)
Payment Due Date (MM/DD/YY) -
P__________ (Enter "P" and amount of
principal being remitted, for example,
P5000000.00) -
I__________ (Enter "I" and amount of
interest being remitted, for example,
I225000.00)
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<PAGE> 48
Securities to be delivered to:
Harris Trust and Savings Bank
111 West Monroe Street
Master Trust Department, 5E
Chicago, Illinois 60690
Attention: Lisa Cox
For Allstate Life Insurance Company/
Safekeeping Account No. 23-91317
All financial reports, compliance certificates and all other written
communications, including notice of prepayments, to be sent to:
Allstate Life Insurance Company
Private Placements Department
3100 Sanders Road, STE J2A
Northbrook, IL 60062-7154
Tax ID #36-2554642
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<PAGE> 49
SCHEDULE I
Principal Amount of Notes to Be Purchased
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount of Notes
- ----------------------------- -------------------------
<S> <C>
Allstate Life Insurance Company $2,500,000
3075 Sanders Road, STE G4A
Northbrook, Illinois 60062-7127
Attn: Investment Operations
Private Placements
Telephone: (708) 402-8709
Telecopy: (708) 402-7331
</TABLE>
All notices of scheduled payments and written confirmations of such
wire transfer should be sent to the address above. All payments by
Fedwire transfer of immediately available funds, identifying the name
of the Issuer (and the Credit, if any), the Private Placement Number
preceded by "DPP" and the payment as principal, interest or premium,
in the format as follows:
[BBK = Harris Trust and Savings Bank
ABA #071000288
BNF = Allstate Life Insurance Company
Collection Account #168-117-0
ORG = Thorn Apple Valley, Inc.
OBI = DPP (PPN: 885184 A# 8)
Payment Due Date (MM/DD/YY) -
P__________ (Enter "P" and amount of
principal being remitted, for example,
P5000000.00) -
I__________ (Enter "I" and amount of
interest being remitted, for example,
I225000.00)
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<PAGE> 50
Securities to be delivered to:
Harris Trust and Savings Bank
111 West Monroe Street
Master Trust Department, 5E
Chicago, Illinois 60690
Attention: Lisa Cox
For Allstate Life Insurance Company/
Safekeeping Account No. 23-91317
All financial reports, compliance certificates and all other written
communications, including notice of prepayments, to be sent to:
Allstate Life Insurance Company
Private Placements Department
3100 Sanders Road, STE J2A
Northbrook, IL 60062-7154
Tax ID #36-2554642
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<PAGE> 51
SCHEDULE I
Principal Amount of Notes to Be Purchased
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount of Notes
- ----------------------------- -------------------------
<S> <C>
Allstate Life Insurance Company $5,000,000
3075 Sanders Road, STE G4A
Northbrook, Illinois 60062-7127
Attn: Investment Operations
Private Placements
Telephone: (708) 402-8709
Telecopy: (708) 402-7331
</TABLE>
All notices of scheduled payments and written confirmations of such
wire transfer should be sent to the address above. All payments by
Fedwire transfer of immediately available funds, identifying the name
of the Issuer (and the Credit, if any), the Private Placement Number
preceded by "DPP" and the payment as principal, interest or premium,
in the format as follows:
[BBK = Harris Trust and Savings Bank
ABA #071000288
BNF = Allstate Life Insurance Company
Collection Account #168-124-6
ORG = Thorn Apple Valley, Inc.
OBI = DPP (PPN: 885184 A# 8)
Payment Due Date (MM/DD/YY) -
P__________ (Enter "P" and amount of
principal being remitted, for example,
P5000000.00) -
I__________ (Enter "I" and amount of
interest being remitted, for example,
I225000.00)
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<PAGE> 52
A Note registered in the name of:
Harris Trust and Savings Bank as Collateral Agent and Trustee Under
the Security and Trust Agreement dated as of September 1, 1993
(Northbrook Life Insurance Company, Secured Party and Beneficiary).
Securities to be delivered to:
Harris Trust and Savings Bank
111 West Monroe Street
Master Trust Department, 5E
Chicago, Illinois 60690
Attention: Lisa Cox
For Allstate Life Insurance Company/
Safekeeping Account No. 23-91317
All financial reports, compliance certificates and all other written
communications, including notice of prepayments, to be sent to:
Allstate Life Insurance Company
Private Placements Department
3100 Sanders Road, STE J2A
Northbrook, IL 60062-7154
Tax ID #36-2554642
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<PAGE> 53
SCHEDULE I
Principal Amount of Notes to Be Purchased
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount of Notes
- ----------------------------- -------------------------
<S> <C>
Principal Mutual Life Insurance Company $10,000,000
711 High Street
Des Moines, Iowa 50392-0800
Attn: Investment Department-Securities Division
</TABLE>
All notices with respect to the Notes, except with respect to payment,
should be sent to the above address. All notices with respect to
payments on the Notes should be sent to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392-0810
Attn: Investment Department-Accounting & Treasury
All payments with respect to the $10,000,000 Note are to be made by
wire transfer of immediately available funds to:
Norwest Bank Iowa, N.A.
7th & Walnut Streets
Des Moines, IA 50309
ABA No.: 073 000 228
For credit to Principal Mutual Life Insurance Company
Account No. 014752
Reference Bond No. 1-B-60462
Tax Identification Number 42-0127290
-49-
<PAGE> 54
SCHEDULE I
Principal Amount of Notes to Be Purchased
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount of Notes
- ----------------------------- -------------------------
<S> <C>
Principal Mutual Life Insurance Company $4,000,000
711 High Street
Des Moines, Iowa 50392-0800
Attn: Investment Department-Securities Division
</TABLE>
All notices with respect to the Notes, except with respect to payment,
should be sent to the above address. All notices with respect to
payments on the Notes should be sent to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392-0810
Attn: Investment Department-Accounting & Treasury
All payments with respect to the $4,000,000 Note are to be made by
wire transfer of immediately available funds to:
Norwest Bank Iowa, N.A.
7th & Walnut Streets
Des Moines, IA 50309
ABA No.: 073 000 228
For credit to Principal Mutual Life Insurance Company
Separate Account No. 032395
Reference Bond No. 16-B-60462
Tax Identification Number 42-0127290
-50-
<PAGE> 55
SCHEDULE I
Principal Amount of Notes to Be Purchased
<TABLE>
<CAPTION>
Name and Address of Purchaser Principal Amount of Notes
- ----------------------------- -------------------------
<S> <C>
Great-West Life & Annuity Insurance Company $13,500,000
8515 East Orchard Road
Third Floor, Tower 2
Englewood, Colorado 80111
Attn: Private Placements
</TABLE>
All notices of scheduled payments and written confirmations of such
wire transfer should be sent to the address above. All payments by
Fedwire transfer of immediately available funds, identifying the name
of the Issuer (and the Credit, if any), the Private Placement Number
preceded by "DPP" and the payment as principal, interest or premium,
in the format as follows:
[BBK = Norwest Bank Minnesota, N.A.
ABA #091-000-019 NW MPLS/TRUST CLEARING
BNF = Great-West Life & Annuity Insurance Company
Collection Account #08-40-245 ATTN: Acct. #12468800
ORG = Thorn Apple Valley, Inc.
OBI = DPP (PPN: 885184 A# 8)
Payment Due Date (MM/DD/YY) -
P__________ (Enter "P" and amount of
principal being remitted, for example,
P5000000.00) -
I__________ (Enter "I" and amount of
interest being remitted, for example,
I225000.00)
-51-
<PAGE> 56
Securities to be delivered to:
Norwest Bank Minnesota, N.A.
733 Marquette Avenue
5th Floor
Minneapolis, Minnesota 55479-0047
Attention: Security Clearance
All financial reports, compliance certificates and all other written
communications, including notice of prepayments, to be sent to:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Attention: U.S. Private Placements
Tax ID #84-0467907
-52-
<PAGE> 57
ANNEX I
THORN APPLE VALLEY, INC.
SUBSIDIARY CORPORATIONS AND ENTITIES
THORN APPLE VALLEY, INC.,
a Michigan corporation
Incorporation Date: July 23, 1971
Qualified in: State:
California
Illinois
Kansas
Massachusetts
Missouri
New Jersey
New York
North Carolina
Ohio
Oklahoma
Pennsylvania
Texas
Utah
CAVANAUGH LAKEVIEW FARMS, LTD.,
a Michigan corporation
Incorporation Date: July 2, 1981
Authorized Capital Stock: 500,000 Shares, Common
Stock $1.00 Par Value
Shareholder(s): Thorn Apple Valley,
Inc., a Michigan
corporation - 225,000
shares
<PAGE> 58
COAST REFRIGERATED TRUCKING CO., INC.
a North Carolina corporation
Incorporation Date: June 21, 1971
Authorized Capital Stock: 1,000 Shares, Common Stock
$100.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation
CROWN WEST, INC.,
a Michigan corporation
Incorporation Date: January 16, 1978
Authorized Capital Stock: 50,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 1,000
Shares
FREDERICK HOLDINGS, INC.,
a Michigan corporation
Incorporation Date: August 3, 1993
Authorized Capital Stock: 60,000 Shares, Common Stock
No Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 1,000
Shares
GUNSBERG CORNED BEEF COMPANY,
a Michigan corporation
Incorporation Date: March 1, 1989
Authorized Capital Stock: 50,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 100
Shares
-2-
<PAGE> 59
MILLER'S TRANSPORT, INC.,
a Utah corporation
Incorporation Date: February 3, 1965
Authorized Capital Stock: Common Stock (Voting) 20,000
Shares, $1.00 Par Value
Preferred Stock, 10,000 Shares,
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 20,000
Shares
NATIONAL FOOD EXPRESS, INC.,
a Michigan corporation
Incorporation Date: October 25, 1983
Authorized Capital Stock: 1,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation
PONCA HOLDINGS, INC.,
a Michigan corporation
Incorporation Date: August 17, 1994
Authorized Capital Stock: 60,000 Shares, Common Stock
No Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 1,000
Shares
-3-
<PAGE> 60
TAV BRANDS, INC.,
a Michigan corporation
Incorporation Date: March 9, 1995
Authorized Capital Stock: 60,000 Shares, Common Stock
No Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 1,000
Shares
THORN APPLE VALLEY HOLDINGS OF INDIANA, INC.,
a Michigan corporation
Incorporation Date: February 16, 1995
Authorized Capital Stock: 60,000 Shares, Common Stock
No Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 1,000
Shares
THORN APPLE VALLEY FOREIGN SALES
CORPORATION, a U.S. Virgin Islands corporation
Incorporation Date: December 19, 1984
Authorized Capital Stock: 1,000 Shares, Common Stock
No Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation
TILLMAN HOLDINGS, INC.
a Michigan corporation
Incorporation Date: June 24, 1994
Authorized Capital Stock: 60,000 Shares, Common Stock
No Par Value
Shareholder(s):
-4-
<PAGE> 61
TRI-MILLER PACKING, CO.,
a Utah corporation
Incorporation Date: November 15, 1960
Authorized Capital Stock; Common Stock (Voting)
2 Shares, $1.00 Par Value
Preferred Stock
500,000 Shares, $1.00 Par Value
Shareholder(s): Thorn Apple Valley, Inc., a
Michigan corporation - 2 Shares
Common Stock
TRI-MILLER TRANSPORTATION COMPANY, INC.,
a Utah corporation
Incorporation Date: December 4, 1985
Authorized Capital Stock: 50,000 Shares, Common Stock
$1.00 Par Value
Shareholder(s): Miller's Transport, Inc., a
Utah corporation - 35,451 Shares
Tri-Miller Packing Co., a Utah
corporation - 14,549 Shares
-5-
<PAGE> 62
3/03/95
THORN APPLY VALLEY, INC.
STANDBY LETTERS OF CREDIT SUMMARY
ANNEX II
<TABLE>
<S> <C>
MICHIGAN NATIONAL BANK
#15995
EXPIRES: 4/1
OUTSTANDING: $250,000
BENEFICIARY: BUREAU OF WORKER'S COMP
#15871
EXPIRES: 12/1
OUTSTANDING: $500,000
BENEFICIARY: ST. PAUL FIRE & MARINE INSURANCE
OLD KENT BANK
ONE (1) IN THE AMOUNT OF ... $850,000
KEY BANK OF UTAH
#021-407-KBU
EXPIRES: 6/8
OUTSTANDING: $700,000
BENEFICIARY: INDUSTRIAL ACCIDENTS $403,500
INDUSTRIAL COMMISSION OF UTAH ----------
$1,103,500
----------
STANDBY LETTERS OF CREDIT - VARIOUS INSURANCE AGREEMENTS $2,703,500
OLD KENT BANK
#8934
EXPIRES: 12/16/98
OUTSTANDING: $5,590,410.96
TRUSTEE: PNC BANK, OHIO, NATIONAL ASSOCIATION
SERVING AS SECURITY TO A $5,500.000 MICHIGAN STRATEGIC
FUND ADJUSTABLE RATE DEMAND LIMITED OBLIGATION REVENUE
BOND. (INDEBTEDNESS INCLUDED ON IRB SCHEDULE) -------------
TOTAL STANDBY LETTERS OF CREDIT $8,293,910.96
=============
</TABLE>
<PAGE> 63
Thorn Apple Valley, Inc.
Summary of Indebtedness
Annex II
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING
@3/3/95
------------
<S> <C>
LINES OF CREDIT:
Combined $6,870,000
-----------
NOTES PAYABLE:
Utah Subsidiary: (Lundahl) 2,400
Corporate: (Boston Financial Institutional Tax Credits
IV), assigned to Great West Life and Annuity
Insurance Co. 1,994,025
Corporate: All state Unsecured Notes 23,000,000
-----------
Sub-total 24,996,425
-----------
INDUSTRIAL REVENUE BONDS:
Utah Subsidiary: (Zions) 1,203,334
Corporate: (Branch Banking) 3,250,000
Corporate: (Michigan Strategic Fund - Adjustable
Rate Demand Limited Obligation Revenue Bond,
Series 1993) 5,500,000
-----------
Sub-total 9,953,334
-----------
CAPITAL LEASES:
Corporate 959,687
Frederick division 3,062,621
Utah Subsidiary 132,966
-----------
Sub-total 4,155,274
-----------
TOTAL OUTSTANDING INDEBTEDNESS $45,975,033
===========
</TABLE>
<PAGE> 64
Thorn Apple Valley, Inc.
Summary of Existing Liens at 3/3/95
Annex III
<TABLE>
<CAPTION>
DEBT AMOUNT OF
LOCATION REFERENCE DESCRIPTION OF COLLATERAL: O/S DEBT
- ------------------- --------- ------------------------------------- -------------
<S> <C> <C> <C>
NOTES PAYABLE:
Utah Subsidiary Lundahl Land $2,400
Corporate Great West Life and Thorn Apple Valley Inc.'s interest in $1,994,025
Annuity Insurance Co. the Boston Financial Institutional Tax
(tax credit IV Credit IV limited partnership.
investment)
INDUSTRIAL REVENUE BONDS:
Utah Subsidiary Zions Part of manufacturing facility. $1,203,334
Corporate Branch Banking Carolina manufacturing facility. $3,250,000
CAPITAL LEASES:
Corporate, Frederick division Various machinery and equipment located at
and Utah Subsidiary the company's various divisions and Utah
subsidiary. $4,155,274
</TABLE>
<PAGE> 65
Thorn Apple Valley, Inc.
Summary of Existing Investments
Annex IV
<TABLE>
<CAPTION>
BALANCE
FINANCIAL INSTITUTION INVESTMENT TYPE @ 3/3/95
- --------------------- --------------- --------
<S> <C> <C>
SHORT-TERM INVESTMENTS
The Bank of Bloomfield Hills CD $2,000,000
The Bank of Bloomfield Hills CD $31,064
United Carolina Bank CD $500,000
Providence TempCash $25,000
Providence TempFund $25,000
----------
Sub-Total $2,581,064
LONG-TERM INVESTMENTS
Boston Financial Institutional Tax Credits
III, Limited Partnership $1,997,709
Boston Financial Institutional Tax Credits
IV, Limited Partnership $2,074,022
----------
Sub-Total $4,071,731
----------
TOTAL INVESTMENTS $6,652,795
==========
</TABLE>
<PAGE> 66
ANNEX V
MATERIAL LITIGATION
Martin E. Levin v. Thorn Apple Valley, Inc., Case No. 89-380591-CK, Oakland
County Circuit Court. Plaintiff brought various breach of contract and tort
claims against Thorn Apple Valley, Inc. and claimed approximately $5 million in
damages. The case was recently tried, and a verdict of approximately
$1,497,000 was entered against the Company. The Company intends to file
motions for a judgment notwithstanding the verdict and for a new trial, and
further intends to appeal the verdict if those motions are not granted.
<PAGE> 67
ANNEX VI
MATERIALS PROVIDED TO PURCHASER
None.
<PAGE> 68
ANNEX VII
ENVIRONMENTAL DISCLOSURE
None.
<PAGE> 69
EXHIBIT A
THORN APPLE VALLEY, INC.
7.58% SENIOR NOTE
Due May 15, 2005
THIS NOTE MAY BE SUBJECT TO A HOME OFFICE PAYMENT AGREEMENT AND
ACCORDINGLY ANY PROSPECTIVE PURCHASERS SHOULD FIRST VERIFY THE UNPAID PRINCIPAL
AMOUNT WITH THE COMPANY.
Registered Note No. R-__ May __, 1995
$_______________
THORN APPLE VALLEY, INC., a Michigan corporation (the "Company"), for
value received, hereby promises to pay to ________________________ or
registered assigns, on the fifteenth day of May, 2005, the principal amount of
______________ Dollars ($__________) and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the principal amount from time to
time remaining unpaid hereon at the rate of seven and fifty-eight hundredths
percent (7.58%) per annum from the date hereof until maturity, payable on the
fifteenth day of May and November in each year, commencing November 15, 1995,
and at maturity, and to pay interest on overdue principal, premium and (to the
extent legally enforceable) on any overdue installment of interest at the
greater of (a) the rate of interest publicly announced from time to time by
Harris Trust and Savings Bank (or its successors or assigns) as its prime rate
plus two percent (2%) or (b) nine and fifty-eight hundredths percent (9.58%)
per annum after maturity or the due date thereof, whether by acceleration or
otherwise, until paid. Payments of the principal of, the premium, if any, and
interest on this Note shall be made in lawful money of the United States of
America in the manner and at the place provided in Section 2.5 of the Note
Agreement hereinafter defined.
This Note is issued under and pursuant to the terms and provisions of
a Note Agreement, dated as of May 15, 1995, entered into by the Company with
the Purchasers named in Schedule I thereto (the "Note Agreement"), and this
Note and any holder hereof are entitled to all of the benefits and are bound by
the terms provided for by such Note Agreement or referred to therein. The
provisions of the Note Agreement are incorporated in this Note to the same
extent as if set forth at length herein.
-60-
<PAGE> 70
This Note has not been registered under the Securities Act as provided
in the Note Agreement, any transfer is subject to compliance with the terms of
the Note Agreement and upon surrender of this Note for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder hereof or its attorney duly authorized in
writing, a new Note for a like unpaid principal amount will be issued to, and
registered in the name of, the transferee upon the payment of the taxes or
other governmental charges, if any, that may be imposed in connection
therewith. The Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
This Note may be declared due prior to its expressed maturity date.
Voluntary and other prepayments may be made hereon in the events, on the terms
and in the manner as provided in the Note Agreement. Such prepayments include
certain required prepayments on May 15 of each year beginning May 15, 1999 and
ending May 15, 2004 and certain optional prepayments with a premium.
Should the indebtedness represented by this Note or any part thereof
be collected in any proceeding provided for in the Note Agreement or be placed
in the hands of attorneys for collection, the Company agrees to pay, in
addition to the principal, premium, if any, and interest due and payable
hereon, to the extent legally enforceable, all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
This Note and the Note Agreement are governed by and construed in
accordance with the laws of the State of Illinois.
THORN APPLE VALLEY, INC.
By:_____________________________________
Its:____________________________________
-61-
<PAGE> 71
EXHIBIT B
LEGAL OPINIONS
A. The opinion of Gardner, Carton & Douglas, special counsel for
the Purchasers, shall be to the effect that:
1. The Company is a corporation organized and validly existing in
good standing under the laws of the State of Michigan, with all requisite
corporate power and authority referred to in the Agreement, to enter into and
perform the Agreement and to issue and sell the Notes.
2. The Agreement has been duly authorized by proper corporate
action on the part of the Company, has been duly executed and delivered by an
authorized officer of the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable in accordance with its terms, except to
the extent that enforcement of the Agreement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or by equitable principles, regardless of whether enforcement is sought in a
proceeding in equity or at law.
3. The Notes have been duly authorized by proper corporate action
on the part of the Company, have been duly executed and delivered by an
authorized officer of the Company and constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their terms, except
to the extent that enforcement of the Notes may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application relating to or affecting the enforcement of the rights of creditors
or by equitable principles, regardless of whether enforcement is sought in a
proceeding in equity or at law.
4. Based upon the representations set forth in the Agreement, the
offering, sale and delivery of the Notes do not require the registration of the
Notes under the Securities Act of 1933, as amended, nor the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
5. The issuance and sale of the Notes and compliance with the
terms and provisions of the Notes and the Agreement will not conflict with or
result in any breach of any of the provisions of the Certificate of
Incorporation or By-Laws of the Company.
The opinion of Gardner, Carton & Douglas also shall state that the opinion of
Honigman, Miller, Schwartz and Cohn, counsel for the Company, delivered to you
pursuant to the Agreement, is satisfactory in form and scope to Gardner, Carton
& Douglas, and, in their opinion, the Purchasers and it are justified in
relying thereon and shall cover such other matters relating to the sale of the
Notes as the Purchasers may reasonably request.
-62-
<PAGE> 72
B. The opinion of Honigman, Miller, Schwartz and Cohn, counsel
for the Company, shall cover all matters specified in clauses 1 through 6 set
forth above and also shall be to the effect that:
1. The Company has full corporate power and authority to conduct
the activities in which it is now engaged and own its property.
2. Each Subsidiary of the Company is a corporation duly organized
and validly existing in good standing under the laws of its jurisdiction of
incorporation, and each has all requisite corporate power and authority to
carry on its business as now conducted and own its property.
3. Each of the Company and its Subsidiaries is duly qualified or
licensed and in good standing as a foreign corporation authorized to do
business in each jurisdiction where the nature of the business transacted by it
or the character of its properties owned or leased makes such qualification or
licensing necessary except where failure to so qualify would not, individually
or in the aggregate, have a material adverse affect on its business,
properties, or condition, financial or otherwise.
4. No authorization, approval or consent of any governmental or
regulatory body is necessary or required in connection with the lawful
execution and delivery by the Company of the Agreement or the lawful offering,
issuance and sale of the Notes, and no designation, filing, declaration,
registration and/or qualification with any governmental authority is required
by the Company in connection with such offer, issuance and sale.
5. The issuance and sale of the Notes and the execution, delivery
and performance by the Company of the Agreement will not conflict with, or
result in any breach or violation of any of the provisions of, or constitute a
default under, or result in the creation of any Lien on the property of the
Company or any Subsidiary pursuant to, (i) the provisions of the Certificate of
Incorporation or other charter document of the Company or any Subsidiary or
By-laws of the Company or any Subsidiary or any loan agreement under which the
Company or any Subsidiary is bound, or other agreement or instrument to which
the Company or any Subsidiary is a party or by which any of them or their
property is bound or (ii) any law (including usury laws) or regulation, order,
writ, injunction or decree of any court or governmental authority applicable to
the Company.
6. There are no actions, suits or proceedings pending or, to the
best of such counsel's knowledge after due inquiry, threatened against, or
affecting the Company or its Subsidiaries, at law or in equity or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which are likely
to result, either individually or in the aggregate, in any material adverse
change in the business, properties, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole.
-63-
<PAGE> 73
7. All of the issued and outstanding shares of capital stock of
each Subsidiary have been duly and validly issued, are fully paid and
nonassessable and, to the knowledge of such counsel, are owned by the Company
free and clear of any Lien.
8. The issuance of the Notes and the use of the proceeds of the
sale of the Notes do not violate or conflict with Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System (12 C.F.R., Chapter II).
9. Neither the Company nor any Subsidiary is: (i) a "public
utility company" or a "holding company," or an "affiliate" or a "subsidiary
company" of a "holding company," or an "affiliate" of such a "subsidiary
company," as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended, or (ii) a "public utility" as defined in the Federal Power
Act, as amended, or (iii) an "investment company" or an "affiliated person"
thereof or an "affiliated person" of any such "affiliated person," as such
terms are defined in the Investment Company Act of 1940, as amended.
The opinion of Honigman, Miller, Schwartz and Cohn shall cover such other
matters relating to the sale of the Notes as the Purchasers may reasonably
request. With respect to matters of fact on which such opinion is based, such
counsel shall be entitled to rely on appropriate certificates of public
officials and officers of the Company and with respect to matters governed by
the laws of any jurisdiction other than the United States of America and the
State of Illinois, such counsel may rely upon the opinions of counsel deemed
(and stated in their opinion to be deemed) by them to be competent and
reliable. The opinion of Honigman, Miller, Schwartz and Cohn shall provide
that such opinion may be relied upon by the Purchasers and its counsel and (i)
in connection with enforcement of obligations of the Company under the Notes
and the Note Agreement, (ii) in response to a subpoena or other legal process,
(iii) as otherwise required by applicable law or regulation or (iv) in
connection with the sale or transfer of any of the Notes to a subsequent
purchaser or transferee.
-64-
<PAGE> 1
EXHIBIT 10(v)
MARKETING AND MANAGEMENT AGREEMENT
THIS MARKETING AND MANAGEMENT AGREEMENT (this "Agreement") is made and
entered into as of this 2nd day of November, 1994, by and among Michigan
Livestock Exchange, a Michigan non-profit corporation ("Michigan"), Indiana
Livestock Exchange, an Indiana corporation which is a wholly owned subsidiary
of Michigan ("Indiana") and Thorn Apple Valley, Inc., a Michigan corporation
("TAV").
R E C I T A L S:
A. Michigan and Indiana (collectively, "MLE") have substantial
expertise in managing livestock buying operations and presently operate a
number of hog buying stations (the "MLE Stations");
B. TAV is a slaughterer of hogs and a producer of related
products, and presently operates a number of hog buying stations (the "TAV
Stations"), which it believes that MLE could more efficiently operate and
manage;
C. TAV and MLE desire MLE to operate and manage the TAV Stations
for TAV;
D. TAV desires to purchase from MLE hogs obtained by MLE through
any of the MLE Stations;
E. MLE desires that TAV purchase preferred stock from Michigan
Livestock Credit Corporation ("MLCC"), a subsidiary of MLE, in order to permit
MLCC to continue to assist producers in the region to produce more and higher
quality hogs; and
F. The parties desire to enter into this Agreement to provide for
the foregoing and to confirm and evidence their agreements with respect
thereto.
NOW THEREFORE, MLE and TAV hereby agree as follows:
1. Term of Agreement. This Agreement shall be effective as of
December 1, 1994 (the "Effective Date") and shall continue thereafter for a
period of ten years, or through November 30, 2004. Upon the expiration of such
term, this Agreement shall be automatically renewed for an additional ten year
term unless either party has given the other party written notice of its
decision not to renew this Agreement at least two years prior to the date of
expiration of the original term.
2. Operation of MLE's Buying Stations. By signing this
Agreement, MLE agrees to convert the operations of all of the MLE Stations in
accordance with the procedures described in Section 3. TAV, in consideration
of that agreement, agrees to pay MLE a conversion fee of $500,000 on or before
the Effective Date, which fee shall be deemed fully earned and non-refundable
upon payment.
<PAGE> 2
3. Management of Hog Buying Stations.
(a) During the term of this Agreement, MLE shall operate and
manage both the MLE Stations and the TAV Stations, a current list of which is
set forth as Exhibit 3(a). All assets and rights relating to the MLE Stations
shall remain MLE's. All assets and rights relating to the TAV Stations shall
remain TAVs. All employees of both the MLE Stations and the TAV Stations shall
be MLE's employees. MLE's operation of those hog buying stations and MLE's
selection, management and retention of those employees shall be in accordance
the remaining subsections of this Section 3.
(b) The management and operational services to be performed by MLE
pursuant to this Agreement shall include all services required for the
operation of the MLE Stations and the TAV Stations, including, but not limited
to the following: (i) purchase of hogs on a daily basis, with days and hours of
operation consistent with those presently employed by MLE; (ii) hiring of
employees to staff each hog buying station; (iii) collection of receivables,
payment of payables and maintenance of all supporting records; and (iv)
preparation of monthly and annual financial statements and of other management
reports and conduct of related management information activities.
(c) Management decisions in the operation of the MLE Stations and
the TAV Stations shall be made in accordance with the following:
(i) Except as provided below, MLE shall make all day-to-
day management decisions;
(ii) While MLE will, as part of its day-to-day management,
supervise all employees of the MLE Stations and the TAV Stations, all
hirings and firings of such employees will be based upon the mutual
determination of MLE and TAV. If MLE and TAV disagree regarding a
particular hiring or firing, then the following shall apply:
(A) If a disagreement regarding staffing arises
between the Effective Date and November 30, 1996, then MLE
shall have the final authority regarding that staffing
decision;
(B) If a disagreement regarding staffing arises
from and after December 1, 1996, then TAV shall have the final
authority regarding that staffing decision;
2
<PAGE> 3
(iii) Any decisions regarding the sale or closing of any MLE Station
or TAV Station shall require the mutual agreement of MLE and TAV; provided,
however, that:
(A) MLE shall have the right, after notice to and
discussion with TAV, to close one or more MLE Stations if, but only
if, MLE reasonably determines that the closing of the MLE Station
will not adversely affect MLE's procurement of the hogs required by
TAV for its production operations and during the 12 month period
preceding the proposed closing date, the MLE Station to be closed
ranked in the lowest 10% of all MLE Stations on the basis of hog sales
volume. If MLE at the time of such closure or thereafter determines to
sell that MLE Station, then TAV shall have the right of first refusal
to purchase that MLE Station upon the terms stated in Section 13.
(B) TAV shall have the right, after notice to and
discussion with MLE, to close one or more of the TAV Stations if, but
only if, TAV commits to MLE that if and for so long as TAV continues
to own that TAV Station during the remainder of the term of this
Agreement TAV will not operate, or permit any other party to operate,
that TAV Station is a hog buying station. If TAV at the time of such
closure or thereafter determines to sell that TAV Station, then MLE
shall have the right of first refusal to purchase that TAV Station
upon the terms stated in Section 13.
(C) TAV shall have the right, pursuant to Section 10(b),
to withdraw (and thereafter sell, close or otherwise operate) all, but
not less than all, of the TAV Stations.
(iv) Any decisions regarding the addition (by acquisition or
otherwise) of any new MLE Station or any new TAV Station shall be subject to
the following:
(A) Except as otherwise provided in Section 3(c)(iv)(B),
the addition of any new hog
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buying stations shall require the mutual agreement of MLE and
TAV, which agreement shall not be unreasonably withheld.
In granting or withholding agreement, the potential effect of
the new MLE Station or TAV Station on any existing MLE Station
or TAV Station will be considered. In reaching such
agreement, ancillary agreement will be reached regarding any
adjustment to the level of reimbursement limitations in
Section 4(b) and the level of reimbursement advances in
Section 4(e).
(B) If a party (the "Non-Renewing Party") delivers
notice to the other party (the "Other Party") pursuant to
Section 1 of its decision not to renew this Agreement, then
the Other Party shall have the right at any time thereafter
during the remainder of the term of this Agreement
to add one or more hog buying stations for administration
under the terms of this Agreement; provided, however, that the
Non-Renewing Party, by written notice delivered not later than
20 days after the Other Party's delivery of the notice of
addition, may elect that one or more of the additional hog
buying stations not be administered under the terms of this
Agreement, in which event the Other Party, directly or
indirectly, shall operate such additional hog buying
station(s) for its own account.
(v) Any extraordinary decisions regarding any MLE Station
or any TAV Station including, for example, any material change in
hours of operation, any material change in methods of operation, any
material expansion or modification of the physical facilities, shall
be based upon the mutual agreement of MLE and TAV.
(d) Hog buying operations at the MLE Stations and the TAV Stations
shall be conducted in accordance with the following:
(i) The primary and highest priority function in hog
purchasing shall be to purchase for resale to TAV hogs satisfying
TAV's quality, price and quantity specifications. The objective
of that primary function shall be to fulfill TAV's production
requirements. The secondary and lower priority function of the hog
purchasing operations shall be to purchase for resale to third parties
hogs not meeting TAV's quality specifications. The objective of this
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secondary function shall be to utilize excess purchase/resale capacity
to generate net revenue to offset operating expenses and, to the
extent compatible with the primary purchasing function, to provide an
outlet for sales by cooperative members of MLE for hogs not meeting
TAV's quality specifications.
(ii) Hog purchases for resale to TAV shall be made on the
following basis:
(A) TAV, from time to time, will stipulate the
quality specifications for hogs to be resold to TAV. TAV will
have the right to revise those quality specifications at any
time and from time to time. All hogs purchased by MLE for
resale to TAV will conform with TAV's quality specifications
at the time of resale. Unless with TAV's prior approval, MLE
will not purchase for resale to third parties any hogs which
meet TAV's quality specifications.
(B) TAV, on a daily basis, will stipulate quantity
and price specifications for hogs purchased for resale to TAV.
TAV will have the right to revise those quantity and price
specifications at any time and from time to time. MLE
will use its best efforts in its daily hog purchasing
operations to meet TAV's quantity specifications with
purchases at or below TAV's price specifications. Unless with
the prior approval of TAV, MLE will not purchase hogs for
resale to TAV at prices in excess of TAV's price
specifications.
(C) MLE, on a daily basis, will invoice TAV for
hogs to be sold by MLE to TAV. The price invoiced will
equal the price paid by MLE in its purchase of those hogs
plus, if and as applicable, any feeding costs and
transportation costs incurred by MLE in delivering the hogs
to the TAV facilities. (Any feeding costs for the resold hogs
will be included in the daily invoice for those hogs. Any
transportation costs for those hogs, if known at the time of
daily invoicing, will be included in the daily invoice for
those hogs. If not known at the time of daily invoicing, the
transportation costs will be
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included in a later invoice which specifically identifies the
hog deliveries to which the transportation costs relate.)
Each invoice will be paid in full by TAV on or before the next
day after the day that the invoice is issued.
(iii) Hogs purchased by MLE for resale to third parties
shall be purchased and sold by MLE for its own account, with any net
revenue realized by MLE from such sales applied to fund
operating expenses which would otherwise be reimbursable by TAV
pursuant to Section 4.
(e) MLE's operation and management of the MLE Stations and the
TAV Stations shall be overseen by a four person board, referred to herein as
the "Management Board". Two of the members of the Management Board shall be
appointed and removed by MLE, and two of the members of the Management Board
shall be appointed and removed by TAV. One of the two members appointed by TAV
shall be designated by it as the Chairman of the Management Board. The
Management Board shall hold meetings monthly, or at such other intervals as are
agreed to by TAV and MLE, at times specified by the Chairman of the Management
Board. At all meetings of the Management Board, two members shall constitute a
quorum, provided that at least one of such members shall have been appointed by
each of MLE and TAV. A member present at a meeting of the Management Board may
exercise the voting right of any member not present if authorized by a written
proxy.
4. Payment by TAV of Operating Expenses.
(a) Subject to the limitations in Section 4(b), TAV shall
reimburse MLE for all direct expenses incurred by MLE in operating and managing
the TAV Stations and the MLE Stations and all indirect expenses incurred by MLE
in operating and managing the MLE Stations. For such purposes:
(i) The "direct expenses" will include all operating
expenses incurred by MLE which, in accordance with generally accepted
accounting principles, are allocable to the operation and management
of the TAV Stations and the MLE Stations, excluding
transportation and feed costs incurred for delivered hogs to the
extent invoiced to the purchaser as part of the selling price
for the hogs. The "direct expenses" will include, in addition to those
operating expenses incurred at the TAV Stations and the MLE Stations,
operating expenses
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incurred at administrative facilities of MLE to the extent properly
allocable to the operation and management of the TAV Stations and the
MLE Stations (as distinguished from operating expenses properly
allocable to the general overhead of MLE or to other activities of
MLE). Without limiting the forgoing, the "direct expenses" will
include depreciation with respect to the MLE Stations and interest and
other financing charges incurred by MLE for indebtedness which
finances the cost of purchasing hogs.
(ii) The "indirect expenses" will include all other
expenses incurred by MLE which, in accordance with generally accepted
accounting principles, are allocable to the operation and management
of MLE Stations.
Any dispute regarding the allocation of any expenses to the operation and
management of the MLE Stations and the TAV Stations, and any dispute as to
whether such expenses are "direct expenses" or "indirect expenses", to the
extent not resolved by MLE and TAV, will be resolved pursuant to the
arbitration procedure described in Section 12.
(b) MLE shall endeavor over the first 15 months of this Agreement
to reduce its annualized costs of operating and managing the MLE Stations by
$1,500,000, and MLE shall be obligated over the first 12 months of this
Agreement to reduce its annualized costs of operating and managing the MLE
Stations by $1,029,706. During the year ended December 31, 1993, MLE's
approximate costs to operate and manage the MLE Stations were $5,812,705.
Subject to the adjustments prescribed in Section 4(c), during the first 13
months of the term of this Agreement (from December 1, 1994 through December
31, 1995), MLE's cost to operate and manage the MLE Stations shall not exceed
$5,739,354 ($5,812,705, less the $1,029,706 required to occur ratably over the
first 12 months of that 13 month period). Thereafter, subject to the
adjustments stated in Section 4(c), during each successive 12 month period of
the term of this Agreement (from January 1st through the next December 31st),
MLE's cost to operate and manage the MLE Stations shall not exceed $4,782,999
($5,812,705 less $1,029,706) and during the last 11 month period of the term of
this Agreement (from January 1, 2004 through November 30, 2004), MLE's cost to
operate and manage the MLE Stations shall not exceed $4,384,413. TAV shall
have no obligation to reimburse MLE for the cost of operating and managing the
MLE Stations in excess of $5,739,354 during the first 13 months of the term of
this Agreement, or in excess of $4,782,999 during each 12
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month period ending on a December 31st thereafter or in excess of $4,384,413
during the last 11 month period ending on November 30, 2004. In determining the
cost of operating and managing the MLE Stations, the allocation of expenses
between the MLE Stations and the TAV Stations will be made in accordance with
generally accepted accounting principles; provided, however, that in allocating
the costs from MLE's central administrative facilities, only those costs which
are incrementally incurred as a result of the administration of the TAV
Stations shall be allocated to the TAV Stations and costs which otherwise would
have been incurred in administering the MLE Stations shall continue to be
allocated to the MLE Stations.
(c) The reimbursement limitations in Section 4(b) shall be subject
to the following adjustments:
(i) The reimbursement limitation for each of the
accounting periods specified in Section 4(b) are based upon an annual
interest cost of $344,000 for financing required to "carry" the cost
for the hogs purchased for resale at the MLE Stations. The actual
interest cost incurred by MLE for such purposes during each of the
accounting periods specified in Section 4(b) will be greater or less
than that amount, depending upon both the volume of purchases at the
MLE Stations and the fluctuations in the applicable rate of interest.
As a consequence, the reimbursement limitation for each accounting
period specified in Section 4(b) shall be adjusted to account for any
differential between the actual interest costs incurred by MLE during
such period and the above stated interest cost upon which that
reimbursement limitation was based.
(ii) If additional MLE Stations are opened or if existing
MLE Stations are closed, then TAV and MLE shall negotiate in good
faith toward an adjustment of the limitations on reimbursement, taking
into account the historical operating costs of the closed MLE Stations
and the proposed operating costs of any new MLE Stations.
(iii) The reimbursement limitations specified in Section
4(b) for the accounting period beginning January 1, 1996 and for each
accounting period thereafter are based upon the assumption that, for
each such period, MLE's cost for the salaries, wages and benefits to
employees of the MLE Stations (the "Payroll Expenses") will equal
$2,497,456 and does not account for any "cost of living" adjustments.
As of January 1, 1996, and as of each January 1st thereafter, the
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reimbursement limitation for the accounting period beginning on that
date shall be adjusted by reference to the Consumer Price Index for
All Items, as published by the United States Bureau of Labor
Statistics (the "CPI") in accordance with the following formula:
Current Index - Base Index x $2,497,456 = Adjustment
--------------------------
Base Index
PROVIDED, HOWEVER, that the Adjustment for each accounting period
shall not, under any circumstances, be more than 4% of the actual
Payroll Expense for the 12-month period ending on the December 31st
immediately prior to that accounting period. For such purposes, the
"Current Index" will be the CPI published for the September
immediately preceding the adjustment date and the Base Index will be
the CPI published for September of 1994.
(d) For the 12 month period beginning January 1, 1996, and for
each accounting period thereafter beginning on January 1st during the term of
this Agreement, TAV shall pay to MLE, on an annual basis (within ten days
following the date that TAV receives a certified annual statement for that
accounting period), 50% of the amount by which MLE's annual costs to operate
and manage the MLE Stations are below the reimbursement limitation applicable
to that accounting period as determined under the provisions of Section 4(b)
and 4(c).
(e) TAV shall reimburse MLE for its expenses in operating and
managing the MLE Stations and the TAV Stations as follows:
(i) On the first day of each month during the 13 month
period beginning December 1, 1994, TAV shall pay MLE an advance
against operating expenses in the amount of $494,089 (which represents
an advance of $441,489 per month with respect to the MLE Stations and
an advance of $52,600 per month with respect to the TAV Stations).
As of January 1, 1996, and as of each January 1st thereafter during
the remainder of the term of this Agreement, the monthly advance
payable by TAV to MLE shall be adjusted to equal the average monthly
reimbursement made by TAV to MLE for the 12 month period ending on the
December 31st immediately preceding that adjustment date.
(ii) Within 30 days after the end of each quarterly period
during the term of this Agreement (i.e., the three month periods
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ending on the last days of March, June, September and December), MLE
shall provide TAV with a statement, reviewed and verified by an
officer of MLE, setting forth in reasonable detail the management and
operating costs of MLE (as described in Section 4(a)) for such
quarter. (By such verification, the MLE officer will attest that, to
such officer's knowledge, the statement fairly represents the results
of operations for the period reported, in accordance with generally
accepted accounting principles, subject to year-end adjustments based
upon a review and audit of the records of MLE). If, on the basis of
that statement, the advances paid by TAV to MLE for the reported
quarter exceed MLE's reimbursable operating and management expenses
for that quarter, then MLE shall include with such statement a check
to TAV for the amount of such excess. If, on the basis of that
statement, the advances paid by TAV to MLE for the reported quarter
are less than MLE's reimbursable operating and management expenses for
that quarter, then TAV shall remit to MLE a check for that deficiency
within ten (10) days after TAV's receipt of that statement.
(iii) Within 75 days after the end of each 12 month period
ending on December 31st during the term of this Agreement, MLE shall
provide TAV with a statement, reviewed and certified by an independent
public accounting firm retained by MLE, setting forth in reasonable
detail the management and operating costs of MLE (as described in
Section 4(a)) for such 12-month period. If, based upon that annual
statement, the net advances (i.e., the advances made pursuant to
Section 4(e)(i) plus, or minus, the reconciling payments made pursuant
to Section 4(e)(ii)) paid by TAV to MLE for the reported 12-month
period exceed MLE's reimbursable operating and management expenses for
that period, MLE shall include with such statement a remittance of
the amount of any such excess advances. If, based upon that annual
statement, the net advances (as above) paid by TAV to MLE with respect
to such 12-month period are less than MLE's reimbursable operating and
management expenses for that period, TAV shall, within ten days after
receipt of such statement, remit to MLE the amount of any deficiency.
(f) TAV shall have the right to examine and make copies of the
books and records of MLE (including any computer or data base information) to
the extent such records relate to this Agreement. Each such examination shall
be made upon
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reasonable notice at MLE's usual place of business, and shall be
conducted on TAV's behalf and at TAV's expense; provided, that if
any examination reveals a discrepancy in reimbursable expenses of 10%
or more for any quarter examination, MLE shall reimburse TAV for the
costs of such audit.
5. Management Fee. During the term of this Agreement, TAV shall
pay MLE, in addition to the commitment fee specified in Section 2 and the cost
reimbursements specified in Section 4, a monthly facilities use and management
fee equal to the following:
(a) For the month of December, 1994 and for each of the 35
months thereafter to and including November of 1997, TAV shall pay to
MLE a fee of $69,444; and
(b) For the month of December, 1997, and for each of the
next 83 months thereafter to and including November, 2004, TAV shall
pay to MLE a fee of $83,333.
The monthly installments prescribed in this Section 5 shall be due and payable
in advance by check on the first day of each month.
6. Purchase of Preferred Stock by TAV. On December 1, 1994, TAV
shall purchase from Michigan Livestock Credit Corporation ("MLCC") 100,000
shares of MLCC's Class C Preferred Stock for the sum of $2,000,000, pursuant to
the Preferred Stock Purchase Agreement attached hereto as Exhibit 6. Such
preferred stock shall pay dividends to TAV at the rate of 6% per annum. If TAV
is satisfied, in its sole discretion, that the programs instituted by MLCC are
beneficial to the improvement of hog supplies available to TAV, TAV shall
purchase an additional 50,000 shares of MLCC's Class C Preferred Stock on each
of the third, fourth and fifth anniversaries of the Effective Date, for a
purchase price of $1,000,000 in each instance. Upon the termination of this
Agreement (whether by expiration of the term stated in Section 1 or due to an
earlier termination pursuant to Section 10), MLCC shall repurchase from TAV, at
TAV's aggregate purchase price, all Class C Preferred Stock then owned by TAV,
with such purchase price, together with interest at the rate of 6% per annum,
payable in 12 equal monthly installments of principal and interest, with the
first such installment due 30 days after the effective date of termination of
this Agreement.
7. Representations and Warranties.
(a) MLE represents and warrants to TAV as follows:
(i) Organization and Standing. Each of Michigan
and Indiana is a corporation duly organized, validly existing,
and in good standing under the laws of the state of its
incorporation. Michigan
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and Indiana each has all requisite corporate power and
authority to carry on its business as now conducted and as
proposed to be conducted, and is duly qualified as a foreign
corporation and is in good standing in all other jurisdictions
in which such qualification is required.
(ii) Authorization. All corporate action on the
part of Michigan and Indiana, and of their respective
officers, directors, and shareholders, which is necessary for
the authorization, execution, delivery and performance of all
obligations of each of them under this Agreement has been
taken. This Agreement constitutes a valid and legally binding
obligation of Michigan and Indiana.
(iii) Financial Statements. Michigan has furnished
to TAV with (a) audited balance sheets of MLE as of December
31, 1991, 1992 and 1993, together with audited statements of
operations, shareholders' equity, and changes in financial
position for each of the years then ended. MLE has also
furnished TAV with unaudited statements of operations for its
hog buying station operations for the year ended December 31,
1993. Such audited and unaudited financial statements of MLE
are referred to herein collectively as the "Financial
Statements." The Financial Statements are in accordance with
the books and records of Michigan and Indiana and fairly
present the financial position of Michigan and Indiana as of
their respective dates and the results of the operations of
Michigan and Indiana for the periods then ended.
(iv) No Changes. Subject to the provisions of
Section 3(c)(iii), during the term of this Agreement, Michigan
and Indiana will maintain and operate their respective hog
buying stations in a manner consistent with the way in which
such hog buying stations have been maintained and operated
during the three year period ended December 31, 1993. During
the term of this Agreement, Michigan and Indiana will continue
to maintain and operate sufficient numbers of hog buying
stations to permit them to purchase at least as many hogs as
they purchased during the year ended December 31, 1993.
(v) Title to Tangible Property and Assets;
Liabilities. Except (a) as reflected in their Financial
Statements or in the notes thereto, (b) for liens for current
taxes not yet delinquent, (c) for liens
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imposed by law and incurred in the ordinary course of business
for obligations not yet due to carriers, warehousemen,
laborers, materialmen, and the like, (d) for liens in respect
of pledges or deposits under workers' compensation laws or
similar legislation, or (e) for minor defects in title, none
of which, individually or in the aggregate, materially
interferes with the use of such property, the Michigan and
Indiana have good and marketable title to all tangible
property owned by them or own their property free and clear of
all mortgages, liens, loans, and encumbrances. With respect
to the property they lease, Michigan and Indiana are in
compliance with such leases and hold a valid leasehold
interest free of any liens, claims, and encumbrances, subject
to clauses (b)-(e) above. Except for liabilities incurred in
the usual and ordinary course of business since the date of
the Financial Statements, neither Michigan nor Indiana has
knowledge of any liability of any kind or nature whatsoever,
which has not been timely and adequately reflected or
specifically disclosed in the Financial Statements.
(vi) Governmental Consents. To the knowledge of
Michigan and Indiana, all consents, approvals, orders, or
authorizations of, or registrations, qualifications,
designations, declarations, or filings with any federal or
state governmental authority on the part of Michigan and
Indiana required in connection with the consummation of the
transactions contemplated by this Agreement have been
obtained.
(vii) Compliance with Other Instruments. Neither
Michigan nor Indiana is in violation of any provisions of its
Articles of Incorporation or Bylaws as amended and in effect
on and as of the closing, or of any provision of any mortgage,
indenture, agreement, instrument or contract to which it is a
party, or, to the best of their knowledge, of any provision of
any federal or state judgment, writ, decree, order, statute,
rule, or governmental regulation applicable to them. The
execution, delivery, and performance of this Agreement will
not result in any such violation or conflict with or
constitute a default under any such provision.
(viii) Insurance. Each of Michigan and Indiana has
fire and casualty insurance policies, with extended coverage,
sufficient in amount (subject to reasonable deductibles) to
allow it to replace any
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of its properties that might be damaged or destroyed.
(b) TAV represents and warrants to MLE as follows:
(i) Organization and Standing. TAV is a corporation duly
organized, validly existing, and in good standing under the laws of
the State of Michigan, has all requisite corporate power and authority
to carry on its business as presently conducted, and is duly qualified
as a foreign corporation and is in good standing in all other
jurisdictions in which such qualification is required.
(ii) Authorization. All corporate action on the part of
TAV and its officers, directors, and shareholders necessary for the
authorization, execution, delivery, and performance of all obligations
of TAV under this Agreement has been taken. This Agreement, when
executed and delivered, shall constitute a valid and legally binding
obligation of TAV.
(iii) Financial Statements. TAV has furnished to MLE
audited balance sheets of TAV as of December 31, 1991, 1992 and 1993,
together with audited statements of operations, shareholders equity
and changes in financial positions for each of the years then ended
(the "TAV Financial Statements"). The TAV Financial Statements are in
accordance with the books and records of TAV and fairly present the
financial position of TAV as of their respective dates and results of
the operations of TAV for the periods then ended.
(iv) Governmental Consents. To the knowledge of TAV, all
consents, approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with any
federal or state governmental authority on the part of TAV required in
connection with the consummation of the transactions contemplated by
this Agreement have been obtained.
(v) Compliance with Other Instruments. TAV is not in
violation of any provisions of its Articles of Incorporation or Bylaws
as amended and in effect on and as of the closing, or of any provision
of any mortgage, indenture, agreement, instrument or contract to which
it is a party, or, to the best of TAV's knowledge, of any provision of
any federal or state judgment, writ, decree, order, statute,
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rule, or governmental regulation applicable to TAV. The
execution, delivery, and performance of this Agreement will not
result in any such violation or conflict with or constitute a
default under any such provision.
(vi) Insurance. TAV has fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject
to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed.
8. Independent Status of the Parties. It is understood and
agreed that each of MLE and TAV is an independent contractor and is not, and
shall not hold itself out to be, a partner, co-venturer, agent or employee of
the other party. Neither TAV nor MLE shall have the authority to bind the
other in the course of their performance of this Agreement.
9. Indemnification.
(a) MLE shall indemnify and hold harmless TAV and its
shareholders, directors, officers, employees and agents from and
against any and all claims, liabilities, obligations, costs or
expenses (including attorneys' fees) arising by reason of or
associated with any breach by MLE of any of its obligations under this
Agreement or as a result of the negligent or wilful misconduct of MLE,
or its employees or agents, in the performance by MLE of its duties
pursuant to this Agreement.
(b) TAV shall indemnify and hold harmless MLE and its
shareholders, directors, officers, employees and agents from and
against any and all claims, liabilities, obligations, costs or
expenses (including attorneys' fees) arising by reason of or
associated with any breach by TAV of any of its obligations under this
Agreement or as a result of the negligent or wilful misconduct of TAV,
or its employees or agents, in the performance by TAV of its duties
pursuant to this Agreement.
(c) The obligations under Sections 9(a) and 9(b) shall be
continuing and shall survive termination of this Agreement.
10. Termination.
(a) A party (the "Non-Defaulting Party") shall be
entitled to terminate this Agreement in the event of a material
default by the other (the "Defaulting Party").
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For such purposes, a material default shall include and be limited to
the following:
(i) The failure or refusal of the Defaulting
Party to pay any amount due to the Non-Defaulting Party within
three (3) days after delivery by the Non-Defaulting Party to
the Defaulting Party of written demand for payment; or
(ii) The failure or refusal of the Defaulting
Party to perform any material obligation under this Agreement
(other than the obligation for payment which is governed by
the provisions of Section 10(a)(i)) which is not remedied
within 30 days after the date that the Non-Defaulting Party
delivers written notice to the Defaulting Party identifying
and demanding performance of such obligation.
In either such instance, the Non-Defaulting Party may, at any time after the
expiration of the applicable remedial period, terminate this Agreement by
written notice to the Defaulting Party, with such termination effective
immediately upon the delivery of such notice of termination.
(b) TAV may terminate MLE's management and operation of
all (but not less than all) of the TAV Stations (and TAV's obligation
under Section 4 to reimburse MLE for such management and operation) at
any time during the term hereof, upon 30 days prior written notice.
Except as provided below, such termination shall not, however, affect
the provisions of this Agreement relating to the management and
operation of the MLE Stations or the obligations of TAV to reimburse
MLE for the cost of managing and operating the MLE Stations or the
obligation of TAV to pay to MLE the fee specified in Section 5. If
TAV, pursuant to this Section 10(b), terminates MLE's management and
operation of the TAV Stations, then MLE shall have the right,
exercisable by written notice delivered to TAV on or after the date
that TAV delivers written notice of such termination, to terminate
this Agreement with respect to its management and operation of the MLE
Stations, with such termination effective as of the date specified in
such notice.
(c) Except as provided in Sections 10(a) and 10(b), this
Agreement shall remain in full force and effect until the expiration
of the term on January 31, 2005.
11. Confidentiality. Each party (the "Recipient Party") shall
treat all non-public information (the "Confidential Information") with respect
to the products, business, customers or methods of operation of the other party
(the "Disclosing Party") furnished to the Recipient Party
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orally or in writing by the Disclosing Party or by any of its representatives
as confidential, shall hold all Confidential Information in strictest
confidence and shall not disclose to any third party any Confidential
Information except (a) to its directors, officers, employees and
representatives (including outside attorneys, accountants and consultants) who
need to know such Confidential Information for the purposes of this Agreement,
who agree to keep such Confidential Information confidential and who are
provided with a copy of this Section 11 of this Agreement and agree to be bound
by its terms (and the Recipient Party shall inform such persons of the
confidential nature of the Confidential Information and shall take reasonable
measures to enforce confidentiality and to prevent unauthorized use or
disclosure of the Confidential Information, (b) with the prior written consent
of the Disclosing Party, and (c) as may be required by law in the reasonable
judgment of legal counsel to the Recipient Party. In any event, each party
shall be responsible for any breach of this Section 11 of this Agreement by it
or by any of its representatives.
12. Arbitration. In the event of a dispute between the parties
hereto as to the calculation of any sum required to be paid by either party
under this Agreement, the undisputed portion of any such sum shall be paid as
provided in this Agreement and the balance, as determined by an arbitrator (who
shall be a member of one of the "Big Six" national accounting firms, excluding
the firms engage by MLE and TAV, as mutually agreed upon by MLE and TAV), shall
be paid within 10 days after such arbitrator's decision or otherwise treated in
accordance with such decision. In the event that MLE and TAV are unable to
agree on an arbitrator, MLE's and TAV's independent public accountants shall
select an arbitrator who satisfies the requirements of this Section. MLE and
TAV shall share equally the cost of each such arbitration. Such arbitration
shall be final and binding, and pursuant to MCLA Section 600.5001 a judgment of
any Michigan circuit court may be rendered on any such arbitration award.
13. Right of First Refusal to Purchase Stations. Pursuant to
Section 3(c)(iii), MLE has reserved the right to discontinue the management and
operation of specified and limited MLE Stations and TAV has reserved the right
to discontinue the management and operation of specified TAV Stations (each
such discontinued MLE Station or TAV Station is hereafter referred to as an
"Discontinued Station"). If, in connection with or following such
discontinuance, a party (the "Selling Party") proposes to sell a Discontinued
Station and if, following that sale, the Discontinued Station will remain
suited for use by the purchaser as a hog buying station (as distinguished from
any other use), then the other party (the "Other Party") shall have a right of
first refusal with respect to the sale of that Discontinued Station upon the
terms stated in this Section 13.
(a) The Selling Party shall not sell any such
Discontinued Station(s) unless (i) the consideration for the sale is
cash, unsecured indebtedness of a person or entity financially able
(in the judgment of the Selling Party) to satisfy such indebtedness or
a combination of cash and such unsecured indebtedness, (ii) the
Selling Party first notifies the Other Party in writing of such
proposed sale and
17
<PAGE> 18
attaches a copy of the terms thereof (including a copy of the offer
and all other pertinent documents) (the "Sale Note"), and (iii) the
Other Party fails to purchase such Discontinued Station(s) and the
Selling Party complies with Section 13(b). Upon receipt of a Sale
Notice, the Other Party shall have the right, exercisable by written
notice given to the Selling Party within 30 business days after the
date on which such Sale Notice was duly given, to purchase all, but
not less than all, of the Discontinued Station(s) specified in such
Sale Notice at the same price and for cash or on the same terms as are
offered by the proposed purchaser, except that the closing of any such
sale shall be governed by Section 13(c) of this Agreement.
(b) If the Other Party fails to exercise its right of
first refusal with respect to any Discontinued Station(s) described in
a Sale Notice within the time limits set forth in Section 13(a) above,
the Selling Party may sell all but only all of the Discontinued
Station(s) described in the Sale Notice to the purchaser specified in
the Sale Notice if and only if such sale is on the terms and
conditions set forth in such Sale Notice and such sale occurs within
90 business days after such Sale Notice was given to the Other Party.
(c) Closing of any sale pursuant to this Section 13 shall
be at the principal office of the Other Party at such date as may be
mutually agreed upon by the parties, but in no event later than the
90th business day following the date on which the Sale Notice was
given. On the closing date, the Selling Party will, upon receipt of
payment, execute and deliver to the Other Party such bills of sale,
assignments and other documents and instruments as the Other Party may
reasonably request to properly and validly effectuate or evidence such
sale. Any cash payment due on the closing date shall be paid in cash
or by certified or cashier's check and if a note (unsecured
indebtedness) is to be given as part of the consideration in
accordance with this Section 13, such note shall be substantially in
the form provided for in the Sale Notice.
14. Miscellaneous.
(a) Notices. Any and all notices, requests or other
communications hereunder shall be given in writing and delivered by overnight
mail, hand delivery, or by registered or certified mail, return receipt
requested, with first class postage prepaid. Such notices shall be addressed
as follows, unless notice of a change of address is furnished to the other
parties in the manner provided in this Section 14(a):
If to TAV: Thorn Apple Valley, Inc.
18700 West Ten Mile Road
18
<PAGE> 19
Southfield, Michigan 48075
Fax: (810) 552-0986
With a copy to: Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Attn: Donald J. Kunz
If to MLE: Michigan Livestock Exchange
806 Coolidge Road
East Lansing, Michigan 48823
Fax: (517) 337-6070
With a copy to: Hooper, Hathaway, Price,
Beuche & Wallace
126 South Main Street
Ann Arbor, Michigan 48104
Attn: James R. Beuche
Any notice which is required to be made hereunder shall be deemed made
on the date such notice is received by the party to whom it is
directed.
(b) Invalid or Unenforceable Provisions. The invalidity
or unenforceability of any particular provision of this Agreement
shall not affect the other provisions hereof, and this Agreement shall
be construed in all requests as if such invalid or unenforceable
provision were omitted.
(c) Assignment. This Agreement shall not be assigned
without the consent of all parties hereto. This Agreement shall inure
to the benefit of, and shall be binding upon, the parties hereto and
their successors and permitted assigns.
(d) Amendments and Waiver. No amendment, modification,
change, supersession, or cancellation of this Agreement shall be valid
unless the same is in writing and signed by the parties hereto. No
waiver of any provision of this Agreement shall be valid unless in
writing and signed by the party against whom that waiver is sought to
be enforced. The failure of any party at any time to insist upon
strict performance of any condition, promise, agreement, or
understanding set forth herein shall not be construed as a wavier or
relinquishment of the right to insist upon strict performance of the
same or any other condition, promise, agreement, or understanding at a
future time.
19
<PAGE> 20
(e) Entire Agreement. This Agreement sets forth all of
the promises, agreements, conditions, understandings, warranties and
representations among the parties hereto with respect to the
transactions contemplated hereby, and supersedes all prior agreements,
arrangements and understandings among all or some of the parties
hereto, whether written, oral or otherwise. There are no promises,
agreements, conditions, understandings, warranties or representations,
oral or written, express of implied, among the parties except as set
forth herein.
(f) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of Michigan.
(g) Counterparts. The Agreement may be executed in two
or more counterparts, each of which shall constitute an original and
together which shall constitute one instrument.
(h) Attorney's Fees. If any party commences an action
against any other party to enforce any of the terms, covenants,
conditions, or provisions of this Agreement or because of a default by
a party under this Agreement, any prevailing party in any such action
shall be entitled to recover its reasonable attorneys' fees, costs and
expenses incurred in connection with the prosecution or defense of
such action from the nonprevailing party or parties.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of this
2nd day of November, 1994.
THORN APPLE VALLEY, INC.,
a Michigan corporation
___________________________________
By: Joel Dorfman
Its: President
INDIANA LIVESTOCK EXCHANGE,
an Indiana corporation
___________________________________
By: Thomas Reed
Its: President
20
<PAGE> 21
MICHIGAN LIVESTOCK EXCHANGE
a Michigan corporation
___________________________________
By: Thomas Reed
Its: President
from the nonprevailing party or parties.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of this
2nd day of November, 1994.
THORN APPLE VALLEY, INC.,
a Michigan corporation
___________________________________
By: Louis Glazier
Its: Executive Vice President
INDIANA LIVESTOCK EXCHANGE,
an Indiana corporation
___________________________________
By: Thomas Reed
Its: President
21
<PAGE> 22
MICHIGAN LIVESTOCK EXCHANGE
a Michigan corporation
___________________________________
By: Thomas Reed
Its: President
22
<PAGE> 23
from the nonprevailing party or parties.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of this
2nd day of November, 1994.
THORN APPLE VALLEY, INC.,
a Michigan corporation
___________________________________
By: Ed Boan
Its: Executive Vice President
INDIANA LIVESTOCK EXCHANGE,
an Indiana corporation
___________________________________
By: Thomas Reed
Its: President
MICHIGAN LIVESTOCK EXCHANGE
a Michigan corporation
___________________________________
By: Thomas Reed
Its: President
23
<PAGE> 1
EXHIBIT 21
Form 10-K Year Ended
May 26, 1995
THORN APPLE VALLEY, INC.
EXHIBIT (21)
Subsidiaries of the Registrant
Name State of Incorporation
---- ----------------------
Coast Refrigerated Trucking Co., Inc. North Carolina
Cavanaugh Lakeview Farms, Ltd. Michigan
Crown West, Inc. Michigan
Gunsberg Corned Beef Company Michigan
Millers Transport Inc. Utah
National Food Express, Inc. Michigan
Thorn Apple Valley Foreign Sales Corporation Virgin Islands (U.S.)
Tri-Miller Packing Co. Utah
Tri-Miller Transportation Company Inc.* Utah
TAV Brands, Inc. Michigan
* 100% of the stock is owned by Tri-Miller Packing Co. and Millers Transport
Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Thorn Apple Valley, Inc. and Subsidiaries on Form S-8 of our report dated July
21, 1995, on our audits of the consolidated financial statements and the
financial statement schedule of Thorn Apple Valley, Inc. and Subsidiaries as
of May 26, 1995 and May 27, 1994, and for each of the three years in the period
ended May 26, 1995, which report is included in this Annual Report on Form
10-K.
Coopers & Lybrand L.L.P.
Detroit, Michigan
September 1, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-26-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-26-1995
<CASH> 5,261,701
<SECURITIES> 0
<RECEIVABLES> 40,872,961
<ALLOWANCES> 789,100
<INVENTORY> 44,800,792
<CURRENT-ASSETS> 98,085,402
<PP&E> 193,711,286
<DEPRECIATION> 95,643,621
<TOTAL-ASSETS> 204,296,365
<CURRENT-LIABILITIES> 66,328,131
<BONDS> 35,464,669
<COMMON> 577,065
0
0
<OTHER-SE> 98,018,500
<TOTAL-LIABILITY-AND-EQUITY> 204,296,365
<SALES> 744,542,466
<TOTAL-REVENUES> 744,542,466
<CGS> 669,068,064
<TOTAL-COSTS> 669,068,064
<OTHER-EXPENSES> 65,976,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,258,674
<INCOME-PRETAX> 8,199,886
<INCOME-TAX> 2,945,000
<INCOME-CONTINUING> 5,254,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,254,886
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
</TABLE>
