<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<S> <C> <C>
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended May 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-6566
</TABLE>
THORN APPLE VALLEY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
MICHIGAN 38-1964066
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
26999 CENTRAL PARK BOULEVARD, SUITE 300,
SOUTHFIELD, MICHIGAN 48076
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 213-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<C> <C>
NONE
</TABLE>
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. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
NON-AFFILIATES OF THE REGISTRANT AS OF AUGUST 18, 1997, COMPUTED BY REFERENCE TO
THE NASDAQ NATIONAL MARKET CLOSING PRICE ON SUCH DATE, WAS $64,300,390.
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF AUGUST
18, 1997 WAS 6,115,770.
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 1997 Annual Meeting of Shareholders to be held on October 29, 1997 (Part
III).
================================================================================
As filed with the Securities and Exchange Commission on August 28, 1997.
<PAGE> 2
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
PART I
ITEM 1. BUSINESS
GENERAL
Thorn Apple Valley, Inc. (sometimes referred to hereinafter collectively
with its subsidiaries as the "Company") is a major producer of processed meat
and poultry products ("Processed Meats") and is one of the largest slaughterers
of hogs and sellers of related fresh pork products ("Fresh Meats") 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's Processed Meats division engages in the
production and sale of bacon, hot dogs and lunch meats, hams, smoked sausages
and turkey products. The Company markets its Processed Meats products under
premium and other proprietary brand labels including "Thorn Apple Valley(R)",
"Colonial(R)", "Corn King(R)", "Wilson Certified(R)" and "Cavanaugh Lakeview
Farms(R)", as well as under private labels with major supermarket chains and
other customers. Principal customers of the Company include food wholesalers,
supermarkets, food service operations and other manufacturers located throughout
the United States and in selected international markets.
The Company's business strategy is to increase revenue and enhance
profitability by (i) increasing the sales of the Company's higher margin premium
brand Processed Meats products while reducing the Company's reliance on sales of
lower margin private label products, (ii) continuing to improve production
efficiencies in the Company's Fresh Meats and Processed Meats production
facilities, (iii) developing and marketing new Processed Meats products,
including products targeted to health-conscious consumers, and (iv) increasing
overall sales volume through additional marketing strategies with an emphasis on
sales to international markets, including Russia, Korea and Mexico.
PRODUCTS, OPERATIONS AND MARKETING
The Company is engaged in a single segment business with two principal
product categories: processed 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 Processed Meats
division and Fresh Meats division.
<TABLE>
<CAPTION>
FISCAL % OF FISCAL % OF FISCAL % OF FISCAL % OF FISCAL % OF
1993 SALES 1994 SALES 1995 SALES 1996 SALES 1997 SALES
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES (IN DOLLARS)
Processed Meats......... $386.7 53% $416.3 54% $415.4 56% $623.0 63% $598.0 63%
Fresh Meats............. $336.6 46% $349.1 45% $321.8 43% $355.0 36% $353.6 37%
PRODUCTS SHIPPED (IN LBS.)
Processed Meats......... 337.8 -- 351.7 -- 378.2 -- 507.7 -- 452.1 --
Fresh Meats............. 415.6 -- 419.6 -- 422.2 -- 394.6 -- 364.0 --
</TABLE>
Due to market conditions, profit margins on sales of Processed Meats
products are usually more consistent than profit margins on sales of Fresh Meats
and by-products. Processed Meats manufacturers generally receive higher profit
margins on premium labeled items. In recent years, the Company has focused on
identifying emerging trends in consumer preferences and on developing Processed
Meats products in response to those trends, in an attempt to be a market leader
in emerging market segments that offer opportunities for increased sales volume
and higher profit margins than those associated with more mature and more
competitive market segments. For example, the Company has developed innovative
packaging concepts and products that are leaner and have lower fat contents
(such as the Company's premium deli-style sliced turkey ham, turkey breast and
cooked ham products) to appeal to consumers seeking products that are more
convenient to use and are healthier than existing product alternatives. The
Company believes that opportunities
<PAGE> 3
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
exist to extend its current product lines into related Processed Meats products,
thereby leveraging its current premium brand names.
The Company experiences some seasonality in its business. Specifically, the
Company's sales of smoked and spiral sliced hams are typically at their highest
levels during the Christmas and Easter holiday seasons as a result of increased
consumer demand. In order to accommodate the increased holiday sales, the
Company typically builds substantial inventories of hams in anticipation of its
future holiday business. Also, the Company's sales of skinless smoked sausages,
hot dogs and bacon products are generally higher during the summer months.
PROCESSED MEATS PRODUCTS
The Processed Meats 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 and lunch meats, hams, smoked sausages and
turkey products. Shipments by category of these products for the five most
recent fiscal years were as follows:
Product Category
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(IN MILLIONS OF POUNDS)
<S> <C> <C> <C> <C> <C>
Bacon.................................................... 100.6 100.7 111.3 123.1 110.3
Hot dogs and lunch meats................................. 78.1 72.2 71.1 141.9 117.1
Hams..................................................... 67.2 74.1 85.4 125.9 113.4
Smoked sausages.......................................... 51.6 61.3 64.3 65.2 59.4
Turkey products.......................................... 23.9 24.3 25.2 27.0 24.9
Other.................................................... 16.4 19.1 20.9 24.6 27.0
----- ----- ----- ----- -----
Total............................................... 337.8 351.7 378.2 507.7 452.1
===== ===== ===== ===== =====
</TABLE>
The Company's Processed Meats 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. The Company's customer base is generally
comprised of wholesalers, large supermarket chains and food service operations.
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 meat products such
as hot dogs, lunch meats (such as bologna, salami and pickle loaf), corned beef
and smoked sausage, under brand names which include "Thorn Apple Valley(R),"
"Colonial(R)," "Wilson Certified(R)" and "Corn King(R)" 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 premium sliced lunch meats, spiral sliced hams, cooked
hams, deli hams and specialty boneless hams. These products are sold to
supermarket chains under various brand names, including "Thorn Apple Valley(R),"
"Colonial(R)" and "Cavanaugh Lakeview Farms(R)" 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(R)," "Colonial(R)" and other controlled
and private label brands.
2
<PAGE> 4
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
The Thorn Apple Valley-Dixie division of the Company ("Dixie"), which is
located in Forrest City, Arkansas, is primarily engaged in the production of hot
dogs. The products are sold to supermarket chains and to international markets
under brand names which include "Wilson Certified(R)," "Corn King(R)" and
"Colonial(R)" and other controlled and private label brands.
The Thorn Apple Valley-Ponca City division of the Company ("Ponca City"),
which is located in Ponca City, Oklahoma, is primarily engaged in the production
of boneless and bone-in hams, premium, double glazed spiral sliced hams and
premium sliced lunch meats such as turkey ham, turkey breast and cooked ham. The
Ponca City facility is a newly-constructed, 171,000 square foot processing plant
that was put into production in November 1995. Its products are sold to
supermarket chains under brand names which include "Thorn Apple Valley(R),"
"Wilson Certified(R)," "Corn King(R)," "Cavanaugh Lakeview Farms(R)" and
"Colonial(R)" and other controlled and private label brands.
During the fourth quarter of fiscal 1997, the Company decided to close its
Thorn Apple Valley-Council Bluffs division ("Council Bluffs"), which was engaged
in the production of a variety of boneless ham products. The production of these
products was moved primarily to the Company's Ponca City division.
FRESH MEATS PRODUCTS
The Thorn Apple Valley-Fresh Meats division of the Company, 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 3,044,000, 3,339,000 and 3,146,000
hogs were slaughtered by its Fresh Meats division in fiscal years 1997, 1996 and
1995, respectively. The Company's Utah division, which was closed during fiscal
1995, slaughtered approximately 274,000 hogs during fiscal year 1995.
Sales of products by the Fresh Meats division are ordinarily initiated and
completed by telephone between buyers and Fresh Meats 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.
The supply of hogs, plant operating efficiencies, industry slaughter
capacity, prevailing prices for competing meat products and consumer demand all
affect the profitability of the Company's Fresh Meats operations. The profit
margins experienced by the Company and the fresh pork industry on sales of fresh
pork and by-products remained low during fiscal 1997. Fresh pork profit margins
continue to remain under pressure as a result of an industry-wide hog shortage
and continuing high prices for hogs. The Company is unable to predict at this
time when industry-wide profit margins will increase.
TRADEMARKS AND LICENSES
The Company owns or has the right to use over 80 various trademarks,
including those described above. The trademarks are valuable to the Company
because of the significant market advantage that name recognition provides in
the national and international retail markets 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.
DISTRIBUTION AND CUSTOMERS
During fiscal 1997 approximately 17% of the Company's products were
marketed in Michigan. This percentage was 16% and 19% for fiscal 1996 and 1995,
respectively. The balance of the products were
3
<PAGE> 5
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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 1997 totaled approximately $33,900,000. This total was $24,600,000
for fiscal 1996 and approximately $8,600,000 for fiscal 1995.
On a regular basis, the Company sells its Fresh Meats and Processed Meats
products to more than 1,000 customers. These customers consist primarily of
wholesalers, supermarket chains and, in the case of the Company's Fresh Meats
division, other producers of meat and poultry products. For fiscal 1997,
approximately 35% 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.
In servicing its customers, the Company utilizes two strategically located
distribution centers located in Edwardsville, Kansas and Detroit, Michigan. The
distribution centers' geographic locations allow the Company greater flexibility
in providing the highest level of service in meeting the needs of the Company's
customers. In addition to increasing the level of customer service, the
distribution centers have allowed the Company to increase its efficiencies
thereby reducing overall distribution costs.
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 production facilities. The Company also engages
the services of contract carriers, including Coast Refrigerated Trucking Co.,
Inc. and National Food Express, Inc., both wholly-owned subsidiaries of the
Company. The Company reorganized its transportation operations during fiscal
1997 in an effort to reduce overall trucking costs. As part of the
reorganization the Company closed Miller's Transport Inc., a contract carrier
which was a wholly-owned subsidiary. 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 71% of the total purchases of raw materials made by
the Company during fiscal 1997. 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 and Illinois and in Ontario, Canada. Pursuant
to an agreement with Michigan Livestock Exchange ("MLE"), MLE supplied
approximately 62% of the total hogs purchased by the Company in fiscal 1997 (see
"Purchase and Management Agreement" below for further discussion of this
agreement). The transportation of hogs to the Company's Fresh Meats processing
facility is primarily in tractor-trailers owned and operated by independent
contractors.
During fiscal 1997, Grand Rapids obtained 32% of all of the pork required
in its operations from the Company's Fresh Meats division, which constituted
approximately 16% of the cost of the total meat requirements of Grand Rapids.
Approximately 78% of the pork processed during fiscal 1997 at Smoked Meats was
obtained from the Company's Fresh Meats division, which constituted
approximately 67% of its total meat requirements. Approximately 19% of the pork
requirements of Ponca City was obtained from the Company's Fresh Meats division,
which comprised approximately 13% of its total meat requirements. The Company's
Dixie plant received approximately 56% of its pork requirements from the
Company's Fresh Meats division, which represented approximately 14% of its total
meat requirements. Approximately 66% of the pork bellies processed by Carolina
were obtained from the Company's Fresh Meats division.
The Company purchases poultry, beef and other meats required for its
Processed Meats products and other materials such as seasonings, smoking and
curing agents, sausage casings and packing materials from a number of
readily-available sources.
During the fourth quarter of fiscal 1997, the Company suspended a joint
production agreement (the "Production Agreement") with a major meat packing
company (the "Producer"), that was assumed in connection with the Wilson
acquisition. The suspension of the Production Agreement resulted in the planned
4
<PAGE> 6
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
closing of a processed meats facility in Council Bluffs, Iowa, where the Company
had some of its boneless ham products produced. The Iowa plant had been operated
under the Production Agreement between the Company and the Producer. Pursuant to
the Production Agreement, the Producer constructed a ham production facility and
the Company furnished all of the production equipment to be used in such
facility. In addition, the Producer was obligated to produce at such facility on
an exclusive basis, all boneless ham products which the Company would have
required. In return, the Company had agreed to pay and/or reimburse the Producer
for all operating and fixed costs incurred at the facility. The Production
Agreement had an initial term expiring on June 6, 2001. Production of the
Company's boneless ham product lines will be transferred to the Company's Ponca
City plant. As a result of the suspension of the Production Agreement, the
Company recorded a one-time pre-tax restructuring charge to operations of $5.0
million; see Note 12 to the Notes to the Consolidated Financial Statements for
additional information relating to the fiscal 1997 restructuring charge.
Additionally in connection with the Wilson acquisition, the Company has
also assumed a supply agreement with the Producer which was also suspended in
connection with the suspension of the Production Agreement.
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 4,100 employees, approximately 900 of whom
are engaged in slaughtering and cutting hogs, approximately 2,300 of whom are
engaged in the production of the processed meat and poultry products, and
approximately 900 of whom are employed in administration, sales or
transportation.
The majority of the Company's production workers are employed under five
union contracts. These contracts are generally for a period of two to four years
and have various expiration dates through the second quarter of fiscal 2001. The
Company 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 processing 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 processed 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.
5
<PAGE> 7
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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.
ITEM 2. PROPERTIES
The Company's principal plants, distribution centers and corporate
headquarters, all of which are owned by the Company (unless otherwise
indicated), are located as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION IN ACRES (SQ. FT.)
- -------- --------- --------- -----------
<S> <C> <C> <C>
Detroit, Michigan Hog slaughtering and boning 3.2 218,000
operations
Ponca City, Oklahoma Producer of boneless and bone-in 42.0 171,000
hams, premium double-glazed spiral
sliced hams and premium sliced lunch
meats
Detroit, Michigan Producer of premium sliced lunch 4.8 150,000
meats, spiral sliced hams, cooked
hams, deli hams and specialty
boneless hams
Holly Ridge, North Carolina Producer of bacon products 179.0 150,000
Grand Rapids, Michigan Producer of hot dogs, lunch meats, 18.5 135,000
corned beef and smoked sausage
Forrest City, Arkansas Producer of hot dogs 11.3 70,000
Edwardsville, Kansas(1) Distribution center -- 60,000
Council Bluffs, Iowa(2) Producer of boneless ham -- 53,000
Detroit, Michigan(1)(3) Distribution center -- 50,000
Walker, Michigan Poultry boning and producer of pork 27.0 45,000
sausage and corned beef products
Southfield, Michigan(4) Corporate headquarters -- 34,000
</TABLE>
- -------------------------
(1) The Company leases warehouse space in these facilities.
(2) This facility is owned by a third party. See "Business--Raw Materials." Also
see Note 12 to Notes to Consolidated Financial Statements related to the
Company's suspension of its production agreement.
(3) This facility is leased from a related party.
(4) The Company leases this office space.
In addition to the Company's plants, the Company owns and leases various
buildings in Michigan and North Carolina. These buildings are used for
maintenance, storage, certain manufacturing, distribution and other ancillary
services and truck garages.
The land on which each of these properties is located (excluding the leased
properties) is owned by the Company. The properties described above were subject
to mortgages collateralizing outstanding indebtedness in the aggregate amount of
approximately $5.0 million as of May 30, 1997. As of the date of this Annual
6
<PAGE> 8
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
Report on Form 10-K, substantially all of the Company's assets are subject to
liens. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition."
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
expected to have a material adverse effect on the Company's financial position.
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, 1997 there were 506 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 National Market under the symbol
"TAVI." The table below sets forth the range of the highest and the lowest sales
prices and the cash dividends paid for the past two fiscal years.
In October 1995, the Company's Board of Directors discontinued the payment
of dividends on the Company's Common Stock in order to conserve cash for future
operations. Since such date, the Company entered into agreements with various
lenders which restrict the Company's ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Financial Condition" below. The Company has no current plans of paying dividends
on its Common Stock.
<TABLE>
<CAPTION>
1996 1997
----------------------------- -----------------------------
SALES PRICE SALES PRICE
FISCAL ---------------- DIVIDENDS ---------------- DIVIDENDS
QUARTER HIGH LOW PAID HIGH LOW PAID
- ------- ---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
First................................... $23.50 $18.00 $0.7 $14.25 $ 8.75 --
Second.................................. 19.50 15.12 -- 15.75 11.31 --
Third................................... 17.75 14.00 -- 16.75 13.12 --
Fourth.................................. 15.75 10.25 -- 19.75 12.25 --
</TABLE>
7
<PAGE> 9
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)
------------------------------------------------------------------------
MAY 28, 1993 MAY 27, 1994 MAY 26, 1995 MAY 31, 1996 MAY 30, 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................ $729,909,723 $772,098,333 $744,542,466 $983,084,427 $955,793,588
Net income (loss)........ 13,862,567 14,083,373 5,254,886 (21,707,744) (3,166,241)
Net income (loss) per
common share(2)........ $2.36 $2.40 $.91 $(3.76) $(.53)
Total assets............. $143,948,845 $185,442,085 $204,296,365 $327,140,201 $302,786,457
Total long-term debt
(excluding current
portion)............... 8,844,391 27,936,985 35,464,669 159,808,923 150,128,541
Cash dividends per
share.................. $.20 $.27 $.28 $.07 $--
</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 1996 was a 53-week fiscal year
and all other years presented in this table were 52-week fiscal years.
(2) Earnings (loss) 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.
For additional discussion of the differences in operating results in fiscal
1997 as compared to fiscal 1996, see "Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Profitability in the hog slaughter industry is affected by the cost and
supply of hogs and pork product selling prices. The slaughtering industry has
generally been characterized by relatively narrow profit margins and a trend
toward larger, higher volume plants in order to reduce per unit costs. Processed
meat and poultry processors generally receive higher profit margins on premium
labeled items than on fresh pork and by-products.
Hog prices represent the principal production cost of pork slaughterers and
are an important element in the cost of certain processed meat products as well.
Hog prices and hog supply are determined by constantly changing market forces.
The ability of hog slaughterers and processors to maintain satisfactory margins
may be affected by market factors over which such industry participants have
limited control, including, in addition to the supply and price of live hogs,
industry-wide slaughter levels, competition, the relative price of substitute
products, overall domestic retail demand and the level of exports. Negatively
affecting the Company and others in the slaughtering industry is the continuing
lack of market hogs available for slaughter compared with the industry's
slaughter capacity. The continued imbalance between the industry's slaughter
capacity and the availability of market hogs has created a situation in which
increases in raw material prices have outpaced increases in selling prices.
Although the Company does not expect profitability to improve in its Fresh Meats
operations in the near term, the Company believes that the recent high levels of
hog producer profitability will encourage additional hog production, which
should allow this industry segment to return to more profitable levels.
8
<PAGE> 10
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
The following discussion analyzes material changes in the financial
information of the Company on a year to year basis.
RESULTS OF OPERATION
Fiscal 1997 as Compared to Fiscal 1996
(52 week fiscal year compared to 53 week fiscal year)
The Company's net loss for the fiscal year ended May 30, 1997 was $3.2
million compared with a net loss of $21.7 million in 1996. The fourth-quarter
and year-end net results include an after-tax restructuring charge of $3.3
million. The restructuring charge covers an estimate of future costs associated
with the suspension of a joint production agreement at a processing facility in
Council Bluffs, Iowa; see Note 12 of the Notes to the Consolidated Financial
Statements for additional information related to the restructuring charge. The
LIFO (last in, first out) method of valuing inventories had the effect after
taxes of increasing earnings by approximately $3.2 million compared with a
decrease to earnings of $8.9 million in fiscal 1996. The improvement in results
is primarily attributable to higher processed meat and fresh pork operating
margins.
Operating profits in the Processed Meats division improved significantly as
a result of higher margins, improved product mix, lower selling expenses and
improved plant operating efficiencies. Offsetting higher margins was a reduction
in sales tonnage attributable to the Company's planned elimination of
lower-margin product lines and its focus on maintaining reasonable profit
margins on high-volume commodity products. Operating profits in the Fresh Meats
division also improved primarily as a result of improved plant operating
efficiencies. Offsetting the improved plant efficiencies were lower
industry-wide fresh pork margins resulting from the continuing imbalance between
the industry's slaughter capacity and the availability of market hogs.
Net sales for fiscal 1997 decreased $27.3 million or 2.8 percent to $955.8
million from $983.1 million in the comparable prior year. Net sales in the
Company's Processed Meats operations decreased by 4.0% while net sales in the
Fresh Meats operations remained even compared to the prior year. Sales volume
decreased in the Company's Processed Meats operations and Fresh Meats operations
by 11.0% and 7.8%, respectively. Offsetting the lower sales volumes were
increases in Processed Meats and Fresh Meats average selling prices of 7.9% and
8.0%, respectively. The increases in average selling prices was primarily
attributable to the 15% increase in the cost of live hogs, the Company's primary
raw material.
Cost of goods sold (including delivery costs) decreased $63.3 million or
6.8% in fiscal 1997, as compared to fiscal 1996, primarily as a result of lower
sales volume. As a percentage of net sales, cost of goods sold decreased to
91.0% in fiscal year 1997 from 94.8% in fiscal 1996, principally as a result of
improved operating efficiencies in both the Company's Processed Meats and Fresh
Meats operations. Operationally, the Company's facilities continue to run very
efficiently on a direct-cost basis.
Selling expenses decreased $5.1 million or 13.5% from the comparable prior
year period, primarily as a result of lower promotional expenses and a reduction
in operating costs associated with the sales department's completion of its
integration of the Wilson sales function into the Company's business. As a
percentage of net sales, selling expenses decreased to 3.4% from 3.8%.
General and administrative expenses increased $.6 million, or 2.4%, mainly
as the result of general price and wage increases. As a percentage of net sales,
general and administrative expenses increased to 2.8% from 2.7%.
Net interest costs increased $3.3 million, or 38.5%. The increase is
attributable to an increase in interest expense related to increased borrowings
under the Company's revolving credit agreement, as a result of the Company's
fiscal 1996 operating losses and capital expenditures related to the Ponca City
facility construction and increased interest rates associated with the Company's
restructuring of its long-term revolving credit and private placement note
agreements in September, 1996.
9
<PAGE> 11
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
The benefit for income taxes decreased $10.6 million, primarily due to the
decrease in pre-tax loss from operations of $29.2 million to a loss of $5.4
million from a loss of $34.6 million in the comparable prior year period,
resulting from the factors discussed above. The Company's effective tax benefit
rate increased to (41.4%) from (37.2%).
Loss per share of common stock decreased $3.23 from a loss of $3.76 to a
loss of $.53 per share for the comparable prior year period. The reduction in
losses resulted from the factors discussed above.
Fiscal 1996 as Compared to Fiscal 1995
(53 week fiscal year compared to 52 week fiscal year)
The Company's net loss for the fiscal year ended May 31, 1996 was $21.7
million compared with net income of $5.3 million in fiscal 1995. The Company's
fiscal 1995 net income was negatively impacted by a restructuring charge of
approximately $5.0 million; see Note 12 to the Notes to the Consolidated
Financial Statements for additional information on the fiscal 1995 restructuring
charge. The decrease in profits was primarily attributable to lower fresh pork
and processed meat profit margins and higher overhead costs in both the fresh
and processed meat divisions. The LIFO (last in, first out) method of accounting
for inventories had the effect after taxes of decreasing earnings for fiscal
1996 by approximately $8.9 million, compared with an increase to earnings of
approximately $1.3 million in fiscal 1995.
Operating profits for the Processed Meats division were negatively impacted
by increased overhead costs associated with the manufacturing facilities
acquired as part of the Wilson acquisition, along with the start-up costs
associated with the Ponca City facility. The profit margins experienced by the
Fresh Meats division were lower during fiscal 1996 than the margins experienced
by the Company in recent years due to adverse industry pricing conditions and
inefficiencies at the Company's Fresh Meats facility. The Fresh Meats facility's
inefficiencies were due in part to the operational difficulties encountered as a
result of the complexities of the plant's operations and the high rate of speed
at which the plant operates. In response, the Company began assembling a new
plant management team in September, 1995.
Net sales for fiscal 1996 increased by $238.5 million or 32.0%. Sales
volume and average selling prices in the Company's Processed Meats operations
increased by 34.2% and 11.8%, respectively. The Company's Processed Meats
operations sales volume increased primarily as a result of the Wilson
acquisition. The Company's Fresh Meats operation's net sales increased by 10.3%,
due to an increase in average selling prices of 18.0%, offset in part by a
decrease in sales tonnage of 6.5%. The increase in average selling prices was
significantly less than the increase of approximately 25.7% in the cost of live
hogs, the Company's primary raw material. The Company's Fresh Meats sales volume
was down primarily due to the closing, during fiscal 1995, of the Company's
Tri-Miller facility and to an increase in fresh pork being retained for use in
the Company's Processed Meats operations.
Cost of goods sold (including delivery costs) increased by $263.0 million
in fiscal 1996, or 39.3%, as compared to fiscal 1995, principally as a result of
the increase in sales volume related to the Wilson acquisition and as a result
of the increased cost of live hogs referred to above. As a percentage of net
sales, costs of goods sold increased from 89.8% in fiscal 1995 to 94.8% in
fiscal 1996, primarily as a result of overhead costs associated with the
integrated Wilson business and higher overhead costs associated with the
recently completed Fresh Meats facility renovation, additional costs associated
with the Ponca City plant and lower margins in the Company's Fresh Meats
division. Although the Company believes that the Fresh Meats and Ponca City
plants are now operating at acceptable levels, the Company is unable to predict
at this time if or when industry fresh pork margins will return to more
profitable levels.
Selling expenses increased by $12.2 million in fiscal 1996, or 47.9%, as
compared to fiscal 1995, principally as a result of the additional sales
employees, sales offices, and promotional programs associated with the Wilson
acquisition. As a percentage of net sales, selling expenses increased to 3.8% in
fiscal 1996 from 3.4% in fiscal 1995, mainly due to the factors discussed above.
10
<PAGE> 12
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
General and administrative expenses increased $3.6 million in fiscal 1996,
or 15.7%, as compared to fiscal 1995. The increase is primarily due to
additional costs associated with the Wilson acquisition. As a percentage of net
sales, general and administrative expenses decreased to 2.7% in fiscal 1996 from
3.1% in fiscal 1995.
Interest expense increased $6.2 million in fiscal 1996, or 276.0%, as
compared to fiscal 1995. The increase is attributable to the significant
increase in long-term debt associated with the Wilson acquisition. In addition,
borrowings under the Company's revolving credit agreement were significantly
higher than prior year levels due to the Company's operating losses, and to
capital requirements associated with the construction of the Ponca City plant.
The provision for income taxes decreased by $15.8 million in fiscal 1996,
primarily due to the decrease in pre-tax income from operations of $42.8 million
to a pre-tax loss of $34.6 million from pre-tax income of $8.2 million in the
comparable prior period, resulting from the factors discussed above. The
Company's effective tax rate decreased to (37.2%) in fiscal 1996 from 35.9% in
fiscal 1995.
Earnings per share of common stock decreased by $4.67 per share to a net
loss of $3.76 per share in fiscal 1996, due to decreased profitability resulting
from the factors discussed above.
FINANCIAL CONDITION
The Company's business is characterized by high unit sales volume and rapid
turnover of inventories and accounts receivable. The demand for seasonal
borrowings usually peaks in early December when ham inventories and accounts
receivable 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 30, 1997, the Company had a revolving credit
agreement with four participating financial institutions whereby it could borrow
in the aggregate up to $81.6 million of which $62.9 million was drawn upon and
$1.75 million was used to support letters of credit. The line of credit bears
interest at or below the prime rate charged by major banks. Additionally, in
August 1997, the Company obtained a temporary $15.0 million seasonal line of
credit with the same four participating institutions which will be used to help
finance the Company's traditional holiday inventory buildup. This temporary
seasonal line of credit expires February 6, 1998.
At May 30, 1997, the Company had approximately $6.0 million in cash. Cash
provided by operations during the fifty-two weeks ended May 30, 1997 was
approximately $30.0 million. In addition, the Company obtained $3.0 million from
the sale of Common Stock to the Chairman of the Company's Board of Directors.
Cash available at the beginning of the year plus cash generated from operations
and acquired from financing activities was used principally to pay down
borrowings under the revolving credit agreement and other long-term debt of
$40.9 million and to fund net capital expenditures of $9.7 million. The
financing activities included the issuing of $17.25 million of Convertible
Subordinated Debentures due April 1, 2007. The debentures bear interest at a
fixed rate of 9% and are convertible into shares of the Company's Common Stock
at any time prior to maturity at a conversion price of $18.75 per share. Under
certain circumstances the debentures are redeemable at the Company's option. See
note 4D in the "Notes to Consolidated Financial Statements" included in this
Form 10-K for further discussion of the subordinated debt issue. The Company's
net working capital decreased to $56.2 million at May 30, 1997 from $59.0
million at May 31, 1996.
The Company's debt is secured by substantially all of the Company's assets.
In addition, the various loan agreements contain financial covenants with
respect to consolidated net worth and interest coverage ratio (as defined
therein). In addition, the agreements limit borrowings, capital expenditures and
investments, and do not allow the payment of cash dividends or repurchase of the
Company's common stock.
The Company entered into an Amendment Agreement effective in May 1997 (the
"Amendment Agreement") with its secured lenders to amend its various loan
agreements and note agreements to exclude
11
<PAGE> 13
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
the $5.0 million restructuring charge taken with respect to the closing of the
Council Bluffs Facility from the computation of the various financial covenants
under such agreements. If the Amendment Agreement had not been entered into, the
Company would have been in default under such loan agreements and note
agreements as a result of such restructuring charge.
The Company anticipates net capital expenditures during fiscal 1998 of
approximately $8.0 million, which will be used to upgrade various machinery and
equipment with continued emphasis on projects that will further streamline
operations, for increased efficiencies and productivity gains. Management
believes that funds provided from operations and borrowings under available
lines of credit will permit it to continue to finance its current operations and
to further develop its business in accordance with its operating strategies.
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.
12
<PAGE> 14
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Partially incorporated by reference pursuant to Rule 12b-23 from the
Company's 1997 Proxy Statement furnished in connection with the Company's Annual
Meeting of Shareholders to be held on October 29, 1997.
EXECUTIVE OFFICERS OF REGISTRANT
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
NAME AGE OFFICER POSITION
---- --- ---------- --------
<S> <C> <C> <C>
Henry S Dorfman.............. 75 1959 Chairman of the Board
Joel Dorfman................. 46 1978 President and Chief Executive Officer
Louis Glazier................ 48 1980 Executive Vice President Finance and Administration
Keith Jahnke................. 43 1987 Executive Vice President Processed Meats
Edward Boan.................. 47 1987 Executive Vice President Pork and Human Resources
</TABLE>
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 Processed Meats since May
1996. Mr. Jahnke also served as Executive Vice President Sales and Marketing for
the Company from 1987 to May 1996.
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.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference pursuant to Rule 12b-23 from the Company's 1997
Proxy Statement furnished in connection with the Company's Annual Meeting of
Shareholders to be held on October 29, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference pursuant to Rule 12b-23 from the Company's 1997
Proxy Statement furnished in connection with the Company's Annual Meeting of
Shareholders to be held on October 29, 1997.
13
<PAGE> 15
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated by reference pursuant to Rule 12b-23 from the Company's 1997
Proxy Statement furnished in connection with the Company's Annual Meeting of
Shareholders to be held on October 29, 1997.
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 30, 1997 and May 31, 1996
Consolidated Statements of Operation for the years ended May 30, 1997,
May 31, 1996 and
May 26, 1995
Consolidated Statements of Shareholders' Equity for the years ended May
30, 1997, May 31, 1996
and May 26, 1995
Consolidated Statements of Cash Flows for the years ended May 30, 1997,
May 31, 1996 and
May 26, 1995
and
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.
14(a)(2) Financial Statement Schedule
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 30, 1997, May 31, 1996 and May 26, 1995
Schedules other than those referred to are omitted for the reason
that they are not required or are not applicable.
14(a)(3) Exhibits
<TABLE>
<C> <S> <C>
(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.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
(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.
(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) 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)(f) 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.
(g) 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)(g) 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.
(h) Reimbursement Agreement dated as of December 1, 1993 by and
between the Company and Old Kent Bank relating to $5,500,000
Adjustable Rate Demand Limited Obligation Revenue Bonds.
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
Exhibit (10)(h) 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.
(i) 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)(i) 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.
(j) 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)(j) 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.
(k) 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.
Exhibit (10)(k) 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.
(l) 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.
Exhibit 10(l) is incorporated herein by reference to
Exhibit 10(t) to the Company's Annual Report on Form
10-K for the fiscal year ended May 26, 1994, as
amended.
(m) 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.
Exhibit (10)(m) is incorporated herein by reference
to Exhibit 10(u) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 26, 1994, as
amended.
(n) Marketing and Management Agreement dated November 2, 1994 by
and among Michigan Livestock Exchange, Indiana Livestock
Exchange and the Company.
Exhibit 10(n) is incorporated herein by reference to
Exhibit 10(v) to the Company's Annual Report on Form
10-K for the fiscal year ended May 26, 1994, as
amended.
(o) Amended and Restated Credit Agreement, dated as of September
11, 1996, among the Company, the lenders party thereto, and
Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New
York Branch, as agent for the lenders.
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
Exhibit 10(o) is incorporated herein by reference to
Exhibit 10(r) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, as
amended.
(p) Senior Secured Seasonal Line of Credit Agreement, dated as
of September 11, 1996, among the Company, the lenders party
thereto, and Cooperatieve Centrale Raiffeisen-Boerenleen
Bank B.A., New York Branch, as agent for the lenders.
Exhibit 10(p) is incorporated herein by reference to
Exhibit 10(s) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(q) Amendment Agreement, dated as of September 11, 1996, between
the Company and Allstate Life Insurance Company relating to
$15,000,000 principal amount note due April 21, 2006.
Exhibit 10(q) is incorporated herein by reference to
Exhibit 10(t) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(r) Amendment Agreement, dated as of September 11, 1996, between
the Company and Allstate Life Insurance Company relating to
$8,000,000 principal amount note due October 1, 2003.
Exhibit 10(r) is incorporated herein by reference to
Exhibit 10(u) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(s) Amendment Agreement, dated as of September 11, 1996, among
the Company, Allstate Life Insurance Company, Principal
Mutual Life Insurance Company and Great-West Life & Annuity
Insurance Company.
Exhibit 10(s) is incorporated herein by reference to
Exhibit 10(v) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(t) Amendment to Reimbursement Agreement, dated as of September
11, 1996, between the Company and Old Kent Bank.
Exhibit 10(t) is incorporated herein by reference to
Exhibit 10(w) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(u) Intercreditor Agreement, dated as of September 11, 1996
among Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A.,
New York Branch, as Credit Agent, Seasonal Agent and
Collateral Agent, and the lenders party thereto, as
acknowledged and agreed to by the Company and its
subsidiaries.
Exhibit 10(u) is incorporated herein by reference to
Exhibit 10(x) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(v) Security Agreement, dated as of September 11, 1996, among
the Company, the subsidiaries of the Company party thereto,
and Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A.,
New York Branch, as Collateral Agent and Credit Agent.
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
Exhibit 10(v) is incorporated herein by reference to
Exhibit 10(y) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(w) Senior Secured Seasonal Line of Credit, dated as of August
5, 1997, among the Company, the lenders party thereto, and
Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New
York Branch, as agent for the lenders.
(x) Amendment Agreement, dated as of August 8, 1997, among the
Company, the Banks (as defined therein), and the Noteholders
(as defined therein).
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand LLP.
(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)
</TABLE>
18
<PAGE> 20
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
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 August 28, 1997.
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 August 28, 1997.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
Director
- --------------------------------------------
John C. Canepa
/s/ Henry S Dorfman Director
- --------------------------------------------
Henry S Dorfman
/s/ Joel Dorfman President and Director
- -------------------------------------------- (principal executive officer)
Joel Dorfman
Director
- --------------------------------------------
Burton D. Farbman
/s/ Louis Glazier Executive Vice President Finance and
- -------------------------------------------- Administration and Director
Louis Glazier (principal financial and accounting officer)
/s/ Moniek Milberger Director
- --------------------------------------------
Moniek Milberger
/s/ Seymour Roberts Director
- --------------------------------------------
Seymour Roberts
</TABLE>
19
<PAGE> 21
COOPERS & LYBRAND LETTERHEAD
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Thorn Apple
Valley, Inc. and Subsidiaries as of May 30, 1997 and May 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 30, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
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.
Coopers & Lybrand L.L.P.
Detroit, Michigan
July 24, 1997
F-1
<PAGE> 22
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 30, MAY 31,
1997 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,028,698 $ 5,804,371
Short-term investments.................................... 500,000 627,560
Accounts receivable, net of allowance for doubtful
accounts (1997, $888,500; 1996, $621,800)............... 44,888,327 62,908,719
Inventories (Note 2)...................................... 65,115,331 56,263,210
Refundable income taxes................................... 11,490,330
Deferred income taxes (Note 5)............................ 2,727,000 2,199,000
Prepaid expenses and other current assets................. 7,683,296 6,724,994
------------ ------------
Total current assets............................... 126,942,652 146,018,184
------------ ------------
Property, plant and equipment:
Land...................................................... 1,276,933 1,519,976
Buildings and improvements................................ 67,692,480 61,640,117
Machinery and equipment................................... 158,207,873 155,911,312
Transportation equipment.................................. 7,056,966 7,498,075
Property under capital leases............................. 10,162,649 10,301,819
Construction in progress.................................. 3,245,764 4,475,987
------------ ------------
247,642,665 241,347,286
Less accumulated depreciation...................... 111,762,145 98,938,159
------------ ------------
135,880,520 142,409,127
------------ ------------
Other assets:
Intangible assets, net of accumulated amortization of
$1,678,600 and $839,300................................. 31,893,400 32,732,700
Other..................................................... 8,069,885 5,980,190
------------ ------------
Total other assets................................. 39,963,285 38,712,890
------------ ------------
$302,786,457 $327,140,201
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 41,111,001 $ 47,501,565
Notes payable, banks...................................... 14,700,000
Accrued liabilities (Note 3).............................. 23,661,536 21,954,784
Current portion of long-term debt (Note 4)................ 4,566,445 2,818,444
Income taxes.............................................. 1,425,403
------------ ------------
Total current liabilities.......................... 70,764,385 86,974,793
------------ ------------
Other noncurrent liabilities (Note 12)...................... 3,675,000
Long-term debt (Note 4)..................................... 150,128,541 159,808,923
Deferred income taxes (Note 5).............................. 1,138,000 3,631,000
------------ ------------
Total noncurrent liabilities....................... 154,941,541 163,439,923
------------ ------------
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 6,110,480 shares in 1997 and 5,786,129
shares in 1996.......................................... 611,048 578,613
Capital in excess of par value............................ 10,500,213 7,011,361
Retained earnings......................................... 65,969,270 69,135,511
------------ ------------
77,080,531 76,725,485
------------ ------------
$302,786,457 $327,140,201
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 23
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
MAY 30, MAY 31, MAY 26
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Net sales......................................... $955,793,588 $ 983,084,427 $744,542,466
------------ -------------- ------------
Operating costs and expenses:
Cost of goods sold, including delivery costs.... 868,826,788 932,130,906 669,068,064
Selling......................................... 32,468,641 37,533,477 25,377,029
General and administrative...................... 27,141,392 26,515,629 22,911,735
Depreciation and amortization................... 17,449,390 15,378,777 9,830,100
Restructuring charge (Note 12).................. 5,000,000 7,857,319
------------ -------------- ------------
950,886,211 1,011,558,789 735,044,247
------------ -------------- ------------
Income (loss) from operations..................... 4,907,377 (28,474,362) 9,498,219
------------ -------------- ------------
Other expense (income):
Interest, net................................... 11,758,695 8,491,769 2,258,674
Other, net...................................... (1,445,077) (2,408,387) (960,341)
------------ -------------- ------------
10,313,618 6,083,382 1,298,333
------------ -------------- ------------
Income (loss) before income taxes................. (5,406,241) (34,557,744) 8,199,886
Provision (benefit) for income taxes (Note 5)..... (2,240,000) (12,850,000) 2,945,000
------------ -------------- ------------
Net income (loss)................................. $ (3,166,241) $ (21,707,744) $ 5,254,886
============ ============== ============
Earnings (loss) per share of common............. $ (0.53) $ (3.76) $ 0.91
============ ============== ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 24
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 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 6 and Note 7)............... 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
Net loss.................................. (21,707,744)
Cash dividends, $.07 per share............ (404,174)
Shares issued under employee stock
purchase plan (Note 7).................. 15,482 1,548 240,290
--------- -------- ----------- -----------
Balance, May 31, 1996..................... 5,786,129 578,613 7,011,361 69,135,511
Net loss.................................. (3,166,241)
Newly issued shares of common stock (Note
10)..................................... 279,883 27,988 2,972,358
Shares issued under employee stock
purchase plan (Note 7).................. 16,968 1,697 176,950
Exercise of stock options, including
related tax benefits (Note 6)........... 27,500 2,750 339,544
--------- -------- ----------- -----------
Balance, May 30, 1997..................... 6,110,480 $611,048 $10,500,213 $65,969,270
========= ======== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 25
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------
MAY 30, MAY 31, MAY 26,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (3,166,241) $(21,707,744) $ 5,254,886
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.............................................. 16,610,090 14,539,477 9,830,100
Loss on disposition of fixed assets included in
restructuring charge.................................... 6,915,646
Amortization of intangibles............................... 839,300 839,300
Deferred income taxes..................................... (3,021,000) 23,000 353,000
(Gain) loss on disposition of property, plant and
equipment............................................... 631,652 13,568 (15,451)
Provision for losses on accounts receivable............... 339,055 133,951 57,300
Gain on sale of long-term investments..................... (627,802)
(INCREASE) DECREASE IN ASSETS:
Accounts receivable....................................... 17,681,337 (13,260,829) 4,049,338
Inventories............................................... (8,852,121) (2,949,079) (1,020,608)
Refundable income taxes................................... 11,490,330 (10,124,099) (1,366,231)
Prepaid expenses and other assets......................... (2,920,437) (3,397,344) (2,425,749)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable.......................................... (6,390,564) 15,027,415 (1,496,234)
Accrued liabilities....................................... 1,706,752 (6,258,669) 1,512,038
Income taxes payable...................................... 1,425,403 (526,722)
Other noncurrent liabilities.............................. 3,675,000
------------ ------------ ------------
Total adjustments......................................... 33,214,797 (6,041,111) 15,866,427
------------ ------------ ------------
Net cash provided by (used in) operating activities....... 30,048,556 (27,748,855) 21,121,313
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of Wilson, net of cash acquired
(Note 11)............................................... (64,630,873)
Proceeds from sale of long-term investments............... 4,484,005
Capital expenditures...................................... (11,602,699) (38,604,784) (43,367,769)
Proceeds from sale of property, plant and equipment....... 1,905,568 2,712,129 412,926
------------ ------------ ------------
Net cash used in investing activities..................... (9,697,131) (96,039,523) (42,954,843)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 17,250,000 122,500,000 8,000,000
Proceeds from common stock sold to company officer........ 3,000,346
Principal payments on long-term debt...................... (26,198,385) (6,215,552) (2,008,117)
Net borrowings (payments) under lines of credit........... (14,700,000) 8,740,000 5,960,000
Dividends paid............................................ (404,174) (1,610,575)
Proceeds from employee stock purchase plan................ 178,647 241,838
Purchase and retirement of common stock................... (3,390,704)
Proceeds from stock options exercised, including related
tax benefits............................................ 342,294 2,171,888
------------ ------------ ------------
Net cash provided by (used in) financing activities....... (20,127,098) 124,862,112 9,122,492
------------ ------------ ------------
Net increase (decrease) in cash........................... 224,327 1,073,734 (12,711,038)
Cash and cash equivalents, beginning of year.............. 5,804,371 4,730,637 17,441,675
------------ ------------ ------------
Cash and cash equivalents, end of year.................... $ 6,028,698 $ 5,804,371 $ 4,730,637
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized.................... $ 12,164,297 $ 8,324,648 $ 4,003,000
============ ============ ============
Income taxes paid (refunded), net....................... $(12,194,253) $ (2,858,701) $ 3,991,000
============ ============ ============
Noncash investing activities:
Capital lease obligations............................... $ 1,016,004 $ 256,852 $ 2,935,020
============ ============ ============
Acquisition:
The Company purchased substantially all of the assets of
Wilson (Note 11)
In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired........................... $ 75,571,743
Cash paid............................................... (64,630,873)
------------
Liabilities assumed..................................... $ 10,940,870
============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 26
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS:
The Company is engaged in the production and sale of bacon, hot dogs, lunch
meats, hams, smoked sausage and turkey products, as well as the slaughtering of
hogs and the sale of related fresh meat products. The Company sells its products
principally to wholesalers, supermarkets and other manufacturers throughout the
United States and in selected international markets.
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.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 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. Inactive assets held for sale are recorded at
the lower of net book value (cost less accumulated depreciation) or fair value
less costs to sell. The Company capitalized interest incurred on debt during the
course of major projects which approximated $1,092,000 and $1,048,000 during
fiscal 1996 and 1995, respectively.
INTANGIBLE ASSETS:
The Company's intangible assets consist of trademarks and tradenames and
are amortized on a straight-line basis over their estimated useful lives,
determined to be 40 years. Intangible assets are periodically reviewed for
impairment based on an assessment of estimated future cash flows.
F-6
<PAGE> 27
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
COMMODITY OPTIONS AND FORWARD CONTRACTS:
The Company uses a variety of commodity option and forward contracts in an
effort to minimize the potential adverse effects from raw material market price
level changes. Realized gains and losses are recognized currently in income and
expenses. Risk management and hedging activities are often utilized with forward
sales contracting, with forward raw material procurement and with margin
management. The majority of the Company's finished product sales are not hedged,
as they are manufactured from raw material procured from current production.
Hedging activities accounted for less than 5 percent of the total quantities of
annual processed meats tonnage sold.
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 1997, 1996 and 1995 were 6,002,786, 5,778,559 and 5,754,726
respectively.
The potential dilution from shares issuable under employee stock option
plans and convertible subordinated debentures are excluded from the computation
of the weighted average number of common shares outstanding since they are
either not material or antidilutive.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," was issued in February 1997. Adoption of SFAS 128, effective for
reporting periods ending after December 15, 1997, is not expected to have a
material effect in reported earnings per share.
FISCAL YEAR:
The Company's fiscal year is reported on a 52/53-week period which ends on
the last Friday in May. Fiscal year ended May 31, 1996 is a 53-week period.
Fiscal years ended May 30, 1997 and May 26, 1995 are for 52-week periods.
RECLASSIFICATIONS:
Certain amounts from prior years have been reclassified to conform with the
current year presentations.
2. INVENTORIES:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
At lower of cost or market:
Supplies.................................................. $ 9,447,180 $ 9,559,537
Raw materials............................................. 21,911,451 23,518,145
Work in process........................................... 4,016,547 3,588,512
Finished goods............................................ 41,529,153 36,281,016
----------- -----------
76,904,331 72,947,210
Less LIFO reserve........................................... 11,789,000 16,684,000
----------- -----------
$65,115,331 $56,263,210
=========== ===========
</TABLE>
The LIFO method of accounting for inventories had the effect (after income
taxes) of increasing net income by approximately $3,182,000 ($.53 per share) and
$1,282,000 ($.22 per share) for the years ended May 30, 1997 and May 26, 1995,
respectively, and decreasing net income by approximately $8,927,000 ($1.54 per
share) for the year ended May 31, 1996.
F-7
<PAGE> 28
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
3. ACCRUED LIABILITIES:
Included within accrued liabilities are employee benefits representing
self-insured programs of $4,707,813 and $4,588,849 at May 30, 1997 and May 31,
1996, respectively.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 30, MAY 31
1997 1996
------- ------
<S> <C> <C>
A. Revolving credit agreement............................... $ 62,900,000 $ 80,000,000
B. Private placements notes................................. 59,453,846 65,500,000
C. Revenue bonds............................................ 9,455,225 10,629,449
D. Subordinated debentures.................................. 17,250,000
E. Obligations under capital leases......................... 4,559,213 5,143,814
F. Other note............................................... 1,076,702 1,354,104
------------ ------------
154,694,986 162,627,367
Less current portion..................................... 4,566,445 2,818,444
------------ ------------
$150,128,541 $159,808,923
============ ============
</TABLE>
A. At May 30, 1997, the Company has a revolving credit agreement with four
participating banks, whereby it could borrow, in the aggregate, up to $81.6
million, bearing interest at variable rates ranging from below prime rate to the
prime rate charged by major banks. The commitments under the revolving credit
agreement expire on May 30, 1998. The commitment fee on the unused portion of
the facility is .25 percent per annum. The weighted average interest rate at May
30, 1997 was 7.63 percent. Unused lines of credit of $17.0 million were
available at May 30, 1997.
The Company has various agreements between the parties involved in the
revolving credit agreement, the private placement lenders (see note 4B) and the
limited obligation revenue bond lender (see note 4C), whereby it has granted, on
a pro-rata basis, a first lien on substantially all of the Company's assets.
These agreements contain financial covenants with respect to consolidated net
worth and consolidated earnings available for interest expense (as defined
therein). In addition, among other things, the agreements limit borrowings,
capital expenditures and investments, and do not allow the payment of cash
dividends or repurchase of the Company's common stock.
B. At May 30, 1997, the Company has three separate issues of long-term
notes in private placements to institutional investors. The first outstanding
issue, dated April 1, 1994, has an outstanding principal balance of $13,615,385,
bearing interest at a fixed rate of 7.45 percent per annum. The principal is due
in equal annual installments of $1,512,820 beginning April 1, 1998, and ending
April 1, 2005, with the remaining principal payable at maturity on April 21,
2006. The second outstanding issue, dated October 1, 1994, has an outstanding
principal balance of $7,261,538, bearing interest at a fixed rate of 9.42
percent per annum. The principal is due at maturity on October 1, 2003. The
third outstanding issue, dated on May 30, 1995, has an outstanding principal
balance of $38,576,923, bearing interest at a fixed rate of 8.58 percent per
annum. The principal is due in annual installments of $5,510,989 beginning May
15, 1999, and ending at maturity on May 15, 2005. Interest under all of the
above issues is payable on a monthly basis.
C. At May 30, 1997, the Company has three separate revenue bond issues. The
first outstanding issue, referred to as the industrial revenue bond, has an
outstanding principal balance of $1,937,500 with varying quarterly principal
payments due July 1, 1997 through January 1, 2000, and quarterly interest at
81.1 percent of the current prime rate (at May 30, 1997 the rate was 6.89
percent).
F-8
<PAGE> 29
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
4. LONG-TERM DEBT -- CONTINUED
The second outstanding issue, which is referred to as the limited
obligation revenue bond, has an outstanding principal balance of $5,500,000 with
monthly interest payments at a variable rate and the principal due at maturity
on December 1, 2005. The variable rate of interest paid on the second issue
during the month of May 1997 averaged 4.31 percent.
The third outstanding issue, referred to as the economic development
revenue bond, has an outstanding principal balance of $2,017,725 with varying
monthly principal and interest payments through maturity on June 30, 2000,
bearing interest at a fixed rate of 6 percent per annum.
The first and third bond issues are collateralized by property, plant and
equipment. The second bond issue is collateralized by a $5,600,000 letter of
credit. The letter of credit is now secured by a first lien on substantially all
of the Company's assets as described above.
The Company's industrial revenue and economic revenue bond agreements
contain restrictive covenants that include the maintenance of a minimum level of
consolidated tangible net worth, as defined, and of certain financial ratios.
D. On March 25, 1997, the Company completed a public offering of
$17,250,000 of Convertible Subordinated Debentures due April 1, 2007, bearing
interest at a fixed rate of 9 percent per annum. Interest is payable
semi-annually on April 1 and October 1, commencing on October 1, 1997, with
interest accruing from the date of issuance. The Debentures are convertible into
shares of the Company's Common Stock at any time prior to maturity, at a
conversion price of $18.75 per share. Accordingly, each $1,000 principal amount
of Debentures is convertible into 53.33 shares of Common Stock, for an aggregate
of 920,000 shares, representing approximately 13.1 percent of the outstanding
Common Stock after including the converted shares. The Debentures are redeemable
at the Company's option, at any time in whole or in part, except that the
Debentures may not be redeemed prior to April 1, 2000, unless the closing sale
price of the Common Stock equals or exceeds 140 percent of the then current
conversion price for any 20 consecutive trading days.
The Debentures are subordinated to all existing and future senior
indebtedness of the Company. Although the Debentures are cross-defaulted with
the Company's existing secured indebtedness, the Debentures do not require the
Company to comply with any other financial covenants.
E. The Company has obligations under capital leases bearing interest at
fixed rates ranging from 5.5 percent to 11 percent and are collateralized by
property, plant and equipment.
Property under capital leases consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Machinery and equipment........................... $10,162,649 $10,301,819
Less accumulated amortization..................... 3,866,704 3,408,120
----------- -----------
$ 6,295,945 $ 6,893,699
=========== ===========
</TABLE>
Future minimum rentals for property under capital leases mature through the
year 2001, with a present value of total minimum lease obligation of $4,559,213.
F. The Company has a note bearing interest at a fixed rate of 7 percent per
annum. Principal and interest are due quarterly through the date of maturity on
September 13, 2000. The note is secured by a second lien on certain property,
plant and equipment.
F-9
<PAGE> 30
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
4. LONG-TERM DEBT -- CONTINUED
The aggregate maturities of long-term debt (excluding obligations under
capital leases) during the five years subsequent to May 30, 1997 are: 1998;
$3,069,025, 1999; $71,588,163, 2000; $8,600,116, 2001; $7,258,870, and 2002;
$7,023,809.
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.
5. INCOME TAXES:
The Company's provision (benefit) for income taxes was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Currently payable (benefit):
Federal...................................... $ 781,000 $ (9,939,000) $2,259,000
State and local.............................. 333,000
----------- ------------ ----------
Total currently payable (benefit)............ 781,000 (9,939,000) 2,592,000
Deferred:
Federal and state............................ (3,021,000) (2,911,000) 353,000
----------- ------------ ----------
Total provision (benefit).................... $(2,240,000) $(12,850,000) $2,945,000
=========== ============ ==========
</TABLE>
Deferred income taxes 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 30,
1997 and May 31, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation............................. $7,875,000 $5,799,000
Employee benefit plans................... $ 1,765,000 $1,721,000
Bad debt expense......................... 333,000 235,000
Capital leases........................... 73,000 215,000
Restructuring charge..................... 1,875,000
Estimated losses on assets held for
disposal............................... 197,000 375,000
Amortization of intangibles.............. 1,049,000 525,000
Credit carryforward...................... 5,089,000 3,170,000
Tax benefit of net operating loss
carryforward........................... 1,617,000
All other................................ 103,000 393,000 39,000 433,000
----------- ---------- ---------- ----------
Total deferred taxes................ $10,979,000 $9,390,000 $5,540,000 $6,972,000
=========== ========== ========== ==========
</TABLE>
F-10
<PAGE> 31
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
5. INCOME TAXES -- CONTINUED
A reconciliation of the provision for income taxes is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- -------------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Federal income tax (benefit) at
statutory rate...................... $(1,892,000) (35) ($12,095,000) (35) $2,870,000 35
State and local income taxes, net of
federal income tax benefit.......... 232,000 3
Lower tax rate attributable to foreign
sales corporation................... (55,000) (1) (110,000) (138,000) (2)
Nondeductible expenses................ 138,000 3
Utilization of tax credits............ (465,000) (9) (873,000) (2.5)
Other................................. 34,000 1 228,000 (19,000)
----------- --- ------------ ----- ---------- --
$(2,240,000) (41) $(12,850,000) (37.5) $2,945,000 36
=========== === ============ ===== ========== ==
</TABLE>
The credit carryforward of $5,089,000 for which the tax benefit has been
recognized, consists of general business credits of $2,739,000 which expire
between the years 2008 and 2011 and alternative minimum tax credit carryforwards
of $2,350,000, which can be carried forward indefinitely. The NOL carryforward
of $4,621,000 on a pre-tax basis will expire in the year 2013.
6. STOCK OPTION PLANS:
The Company's 1996 Employee Stock Option Plan authorized the Company's
Stock Option Committee to grant options for up to 600,000 shares of the
Company's common stock to present or prospective employees. At May 30, 1997,
there were 54,500 options granted but not exercised at $10.25 per share and
545,500 shares remained to be granted under the 1996 Plan.
At May 30, 1997, there were 674,800 options granted but not exercised at
prices of $10.25, $17.00, $23.00 and $26.00 per share and 141,000 options
granted but not exercised at prices of $2.56 and $19.67 per share under the 1990
and 1982 Employee Stock Option Plans, respectively. Under the 1990 and 1982
plans no shares remain to be granted.
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. Under all plans, the exercise
price of each option equals the market price of the Company's common stock on
the date of grant. Under all plans, the options granted are immediately
exercisable.
F-11
<PAGE> 32
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
6. STOCK OPTION PLANS -- CONTINUED
The following is a summary of options granted under the plans:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES OPTION PRICES SHARES OPTION PRICES SHARES OPTION PRICES
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning... 646,300 $18.91 484,550 $19.76 465,000 $17.00
Exercised............ (27,500) $10.25 -- -- (100,200) $16.67
Canceled or
terminated......... (16,000) $16.02 (33,750) $20.16 (50,750) $21.50
Granted.............. 267,500 $10.25 195,500 $17.00 170,500 $26.00
------- ------- --------
Balance, ending...... 870,300 $16.57 646,300 $18.91 484,550 $19.76
======= ======= ========
</TABLE>
At May 30, 1997, under all plans, the range of exercise prices on
outstanding options is $2.56 to $26.00 per share with a weighted average
remaining contractual life of 7.3 years.
At May 30, 1997, there were 46 participants in the 1996 Employee Stock
Option Plan, 28 participants in the 1990 Employee Stock Option Plan, and 11
participants in the 1982 Employee Stock Option Plan.
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the Company
will continue to apply APB Opinion 25 and related interpretations in accounting
for its stock option plans and, accordingly, does not recognize compensation
cost. If compensation cost for stock option grants had been determined based on
the fair value method as prescribed by SFAS No. 123, net loss and loss per share
would have been increased to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Reported net loss........................................... $(3,166,241) $(21,707,744)
Pro forma net loss, using SFAS No. 123...................... $(4,022,228) $(22,728,410)
Loss per share:
Reported.................................................. $(.53) $(3.76)
Pro forma, using SFAS No. 123............................. $(.67) (3.93)
Weighted-average fair value of options granted.............. $4.92 $8.03
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
valuation model. Under the model the annualized assumptions used for options
granted in fiscal years 1997 and 1996, respectively, was as follows: Risk-free
interest rates of 6.32 and 5.79 percent, dividend yields equal to zero percent
and a volatility factor for the expected market price of the Company's common
stock of 45 percent. The weighted-average expected life of options for the 1997
and 1996 grants is five years.
7. STOCK PURCHASE PLAN:
The Company has an Employee Stock Purchase Plan ("Plan") where employees
may subscribe, through payroll withholdings, to purchase shares of the Company's
common stock at a discount. The discounted price is equal to 85 percent of the
average market value of the common stock. The average market value is computed
using the closing prices at the beginning and end of each calendar quarter.
Employees may not purchase, under the Plan, in excess of $25,000 in any one
year. Under the Plan, the Company is authorized to issue up to 400,000 shares of
its common stock, of which 363,105 have not been issued.
F-12
<PAGE> 33
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
7. STOCK PURCHASE PLAN -- CONTINUED
Transactions under the Employee Stock Purchase Plan are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUE PRICE RANGE
--------- -----------------
<S> <C> <C>
Shares issued during the year ended May 30, 1997............ 16,968 $ 9.56 - $12.54
Shares issued during the year ended May 31, 1996............ 15,482 $12.32 - $17.85
Shares issued during the year ended May 26, 1995............ 4,445 $19.97 - $22.09
</TABLE>
8. 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 1997, 1996 and 1995 includes the following
benefit and cost components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost......................................... $ 387,204 $ 346,101 $ 332,840
Interest cost........................................ 780,947 711,024 645,329
Actual return on plan assets......................... (990,090) (1,474,259) (885,195)
Net amortization and deferral........................ 131,169 738,998 250,402
--------- ----------- ---------
Net periodic pension cost............................ $ 309,230 $ 321,864 $ 343,376
========= =========== =========
</TABLE>
As of May 30, 1997 and May 31, 1996, the funded status of the defined
benefit plans, using the actuarial present value of the benefit obligation, is
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Vested benefit obligation................................... $10,126,657 $ 9,209,690
Projected and accumulated benefit obligation................ 10,698,129 9,750,990
Plan assets at fair value................................... 11,504,526 10,367,441
----------- -----------
Projected benefit obligation less than assets............... (806,397) (616,451)
Unrecognized net gain....................................... 137,192 186,085
Unrecognized net transition asset........................... 176,704 204,515
Unrecognized prior service cost............................. (42,396) (46,993)
----------- -----------
Prepaid pension cost........................................ $ (534,897) $ (272,844)
=========== ===========
Actuarial assumptions used for 1997, 1996 and 1995 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 $134,000, $206,000 and $207,000 in 1997, 1996 and 1995,
respectively.
F-13
<PAGE> 34
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
9. COMMITMENTS:
OPERATING LEASES:
The Company leases transportation, manufacturing equipment and office space
under several operating leases expiring through 2005. The majority of the leases
contain purchase options at stated amounts or fair market value. Rent expense
under all operating leases amounted to approximately $7,792,000, $8,203,000 and
$6,817,000 for the years ended 1997, 1996 and 1995, respectively. Total future
minimum rentals under noncancelable operating leases as of May 30, 1997,
including those discussed below are:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
<S> <C>
1998...................................................... $6,610,000
1999...................................................... 4,614,000
2000...................................................... 2,280,000
2001...................................................... 1,223,000
2002...................................................... 1,025,000
Thereafter................................................ 1,840,000
</TABLE>
The Company maintains inventory at a freezer warehouse that is 75 percent
owned by an officer and director of the Company. 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 December
1997. Freezer warehouse rent expense amounted to $882,000 for the years ended
1997, 1996 and 1995. Storage and handling expenses paid to this freezer
warehouse amounted to approximately $1,482,000, $1,218,000 and $973,000 for the
years ended 1997, 1996 and 1995, respectively.
LETTERS OF CREDIT:
At May 30, 1997, the Company had outstanding letters of credit totaling
approximately $9,500,000 which serve as collateral for the limited obligation
revenue bond issue, as discussed in Note 4, and various self-insured agreements.
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. The MLE supplied approximately 62 percent of the total hogs
purchased by the Company in fiscal 1997. In accordance with the agreement, the
Company has purchased $2.0 million of preferred stock of MLE that pays a 6
percent dividend. The Company has classified the investment in MLE in other
long-term assets on its consolidated balance sheet.
10. COMMON STOCK ISSUED:
The Company sold to its Chairman of the Board of Directors, who is also a
significant shareholder of the Company, 279,883 newly issued shares of the
Company's common stock for an approximate purchase price of $3.0 million. This
sale was in accordance with the long-term debt agreements entered into on
September 11, 1996.
F-14
<PAGE> 35
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
11. ACQUISITION:
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
aggregate purchase price for the assets acquired and the assumption of certain
liabilities was approximately $64.6 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, in
the event of increases in the market price of the Company's common stock. No
amounts have been paid to Foodbrands under the Earnout Agreement. The
acquisition has been accounted for by the purchase method. The acquired assets
included three manufacturing facilities, machinery and equipment, current
assets, certain trademarks and tradenames. The tradename and trademarks acquired
will be amortized to expense over their estimated useful lives, determined to be
40 years. The results of operations of the Company for the 53-week period ending
May 31, 1996 reflect a full year of operation related to the acquired Wilson
assets.
12. RESTRUCTURING CHARGES:
FISCAL 1997:
During the fourth quarter of fiscal 1997, the Company recorded a one-time,
pre-tax restructuring charge to operations of $5.0 million for an estimate of
future costs associated with the suspension of a joint production agreement. The
suspension of the Production Agreement resulted in the planned closing of a
processed meats facility in Council Bluffs, Iowa, where the Company had some of
its boneless ham products produced. The Iowa plant had been operated under the
Production Agreement between the Company and another major meat packing company
(Producer). Pursuant to the Production Agreement, the Producer constructed a ham
production facility and the Company furnished all of the production equipment to
be used in such facility. In addition, the Producer was obligated to produce at
such facility, on an exclusive basis, all boneless ham products which the
Company would have required. In return, the Company had agreed to pay and/or
reimburse the Producer for all operating and fixed costs incurred at the
facility and to pay the Producer a fee of approximately $1,375,000 per year
during the term of the agreement. The Production Agreement had an initial term
expiring on June 6, 2001. Production of the Company's boneless ham product lines
will be consolidated with its new Ponca City plant operations. The restructuring
charge includes $4.6 million related to future annual contractual obligations
and $.4 million relates to other costs and carrying charges associated with the
shutdown, for which the long-term portion has been included in other noncurrent
liabilities.
FISCAL 1995:
During the fourth quarter of fiscal 1995, the Company recorded a one-time,
pre-tax restructuring charge to operations of $7.9 million. The Company closed
its Tri-Miller Packing facility in Hyrum, Utah, in an effort to eliminate
duplicate facilities and excess personnel. The closing reduced ongoing
manufacturing costs and was made possible by the expansion of the Company's
Grand Rapids, Michigan, facility. The restructuring charge included $5.5 million
related to the write-down of plant and equipment that were sold. Another $1.4
million included other costs related to shutdown of the Tri-Miller facility,
which also included employee severance payments. The remaining $1.0 million
related to the write-down of real property and equipment to estimated realizable
value associated with the relocation to a new corporate headquarters building
and of the Company's spiral sliced ham operation to the newly constructed
production facility in Ponca City, Oklahoma.
F-15
<PAGE> 36
Year Ended
Form 10-K THORN APPLE VALLEY, INC. AND SUBSIDIARIES May 30, 1997
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 30, 1997, MAY 31, 1996 AND MAY 26, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- -------- ---------- ---------- ---------
ADDITIONS
----------------------
CHARGED CHARGED TO
BALANCE AT TO OTHER BALANCE
BEGINNING COST AND ACCOUNTS-- (A) AT END
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS OF PERIOD
-------------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended May 30, 1997............... $621,800 $356,055 $ 89,355 $888,500
Year ended May 31, 1996............... 789,100 38,673 205,973 621,800
Year ended May 26, 1995............... 731,800 293,810 236,510 789,100
</TABLE>
Note A. Write-off of uncollectible accounts, net of recoveries.
F-16
<PAGE> 37
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
(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.
(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.
</TABLE>
<PAGE> 38
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
(f) 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)(f) 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.
(g) 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)(g) 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.
(h) Reimbursement Agreement dated as of December 1, 1993 by and
between the Company and Old Kent Bank relating to $5,500,000
Adjustable Rate Demand Limited Obligation Revenue Bonds.
Exhibit (10)(h) 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.
(i) 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)(i) 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.
(j) 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)(j) 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.
(k) 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.
Exhibit (10)(k) 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.
</TABLE>
<PAGE> 39
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
(l) 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.
Exhibit 10(l) is incorporated herein by reference to
Exhibit 10(t) to the Company's Annual Report on Form
10-K for the fiscal year ended May 26, 1994, as
amended.
(m) 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.
Exhibit (10)(m) is incorporated herein by reference
to Exhibit 10(u) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 26, 1994, as
amended.
(n) Marketing and Management Agreement dated November 2, 1994 by
and among Michigan Livestock Exchange, Indiana Livestock
Exchange and the Company.
Exhibit 10(n) is incorporated herein by reference to
Exhibit 10(v) to the Company's Annual Report on Form
10-K for the fiscal year ended May 26, 1994, as
amended.
(o) Amended and Restated Credit Agreement, dated as of September
11, 1996, among the Company, the lenders party thereto, and
Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New
York Branch, as agent for the lenders.
Exhibit 10(o) is incorporated herein by reference to
Exhibit 10(r) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, as
amended.
(p) Senior Secured Seasonal Line of Credit Agreement, dated as
of September 11, 1996, among the Company, the lenders party
thereto, and Cooperatieve Centrale Raiffeisen-Boerenleen
Bank B.A., New York Branch, as agent for the lenders.
Exhibit 10(p) is incorporated herein by reference to
Exhibit 10(s) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(q) Amendment Agreement, dated as of September 11, 1996, between
the Company and Allstate Life Insurance Company relating to
$15,000,000 principal amount note due April 21, 2006.
Exhibit 10(q) is incorporated herein by reference to
Exhibit 10(t) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(r) Amendment Agreement, dated as of September 11, 1996, between
the Company and Allstate Life Insurance Company relating to
$8,000,000 principal amount note due October 1, 2003.
Exhibit 10(r) is incorporated herein by reference to
Exhibit 10(u) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
</TABLE>
<PAGE> 40
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 30, 1997
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
(s) Amendment Agreement, dated as of September 11, 1996, among
the Company, Allstate Life Insurance Company, Principal
Mutual Life Insurance Company and Great-West Life & Annuity
Insurance Company.
Exhibit 10(s) is incorporated herein by reference to
Exhibit 10(v) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(t) Amendment to Reimbursement Agreement, dated as of September
11, 1996, between the Company and Old Kent Bank.
Exhibit 10(t) is incorporated herein by reference to
Exhibit 10(w) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(u) Intercreditor Agreement, dated as of September 11, 1996
among Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A.,
New York Branch, as Credit Agent, Seasonal Agent and
Collateral Agent, and the lenders party thereto, as
acknowledged and agreed to by the Company and its
subsidiaries.
Exhibit 10(u) is incorporated herein by reference to
Exhibit 10(x) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(v) Security Agreement, dated as of September 11, 1996, among
the Company, the subsidiaries of the Company party thereto,
and Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A.,
New York Branch, as Collateral Agent and Credit Agent.
Exhibit 10(v) is incorporated herein by reference to
Exhibit 10(y) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994, as
amended.
(w) Senior Secured Seasonal Line of Credit, dated as of August
5, 1997, among the Company, the lenders party thereto, and
Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., New
York Branch, as agent for the lenders.
(x) Amendment Agreement, dated as of August 8, 1997, among the
Company, the Banks (as defined therein), and the Noteholders
(as defined therein).
(21) Subsidiaries of the registrant.
(23) Consent of Coopers & Lybrand LLP.
(27) Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10(w)
Dated as of August 5, 1997
Thorn Apple Valley, Inc.
26999 Central Park Boulevard
Suite 300
Southfield, Michigan 48076-4178
Re: Senior Secured Seasonal Line of Credit
Gentlemen/Ladies:
Thorn Apple Valley, Inc. (hereinafter referred to as "Borrower"), the
undersigned Lenders (herein collectively called "Lenders" and individually
called "Lender") and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., New
York Branch ("RBN") as Agent for the Lenders (the "Agent") hereby agree as
follows :
1. COMMITMENTS, BORROWING PROCEDURES AND NOTES
1.1 Commitments. On the terms and subject to the conditions of
this Agreement(including Section 4), each Lender severally agrees to make Loans
(such term and others being used herein as defined in Section 9 below) pursuant
to the Commitments described in this Section 1.1.
1.1.1 Commitment of Each Lender. From time to time on any Business
Day occurring prior to the Commitment Termination Date, each Lender will make
loans (relative to such Lender, 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 1.1.1 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.
1.1.2 Lenders Not Required To Make Loans. No Lender shall be required
to make any Loan (x) if, after giving effect thereto, the aggregate outstanding
principal amount of all Loans
(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, or
<PAGE> 2
(y) if, after giving effect thereto, any of the "Commitment Amount" as defined
in the Credit Agreement remains unused.
1.2 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 $1,000,000
and in an integral multiple of $1,000,000.
1.3 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 the day of the requested
Borrowing, 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 Loans, and shall be made on the Business Day, specified in such
Borrowing Request. On or before 2:00 p.m., New York City time, 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.
1.4 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 and the outstanding principal of 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.
-2-
<PAGE> 3
2. REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
2.1 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 the Loans of all Lenders; and
(ii) all such voluntary partial prepayments shall be
in an aggregate minimum amount of $500,000 and an integral
multiple of $100,000;
(b) 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
(c) shall, immediately upon any acceleration of the Stated
Maturity Date of any Loans pursuant to Section 7.2 or Section 7.3,
repay all Loans, unless, pursuant to Section 7.3, 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 3.4. No mandatory
prepayment of principal under Section 2.1(b) or voluntary prepayment of
principal of any Loans shall cause a reduction in the Commitment Amount unless
so specified.
2.2 Interest Provisions. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this
Section 2.2.
2.2.1 Rates. The Loans shall accrue interest at a rate per annum
equal to the Alternate Base Rate from time to time in effect.
2.2.2 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 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%.
-3-
<PAGE> 4
2.2.3 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 2.1(a);
(c) on each Monthly Payment Date occurring after the
Effective Date; and
(d) on that portion of any Loans the Stated Maturity Date
of which is accelerated pursuant to Section 7.2 or Section 7.3,
immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Agreement 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.
2.3 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 Section 4) 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 Monthly Payment Date, commencing
with the first such day following the Effective Date and on such Lender's
Commitment Termination Date. All such fees shall be non-refundable.
3. CERTAIN PROVISIONS
3.1 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
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,
-4-
<PAGE> 5
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.
3.2 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
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
-5-
<PAGE> 6
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
3.2, 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.
3.3 Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Notes or
any other Agreement 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 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 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.
3.4 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 Section
3.1) 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
-6-
<PAGE> 7
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 3.5) 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.
3.5 Setoff. Each Lender shall, upon the occurrence of any Default
described in clauses (a) through (d) of Section 8.1.9 of the Credit Agreement
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 3.4 and the Intercreditor Agreement. Each
Lender agrees promptly to notify the Borrower and the Agent after any such
setoff 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.
-7-
<PAGE> 8
3.6 Use of Proceeds. Proceeds of each 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.
4. CONDITIONS TO BORROWING
4.1 Initial Borrowing. The obligation of each Lender to fund the
initial Borrowing hereunder shall be subject to the prior or concurrent
satisfaction of each of the conditions precedent set forth in this Section 4.1
and in Section 4.2.
4.1.1 Resolutions, etc. The Agent shall have received from the
Borrower and each Subsidiary a certificate, dated a date satisfactory to the
Agent, 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 Agreement 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 Agreement Document executed by it,
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary or Assistant Secretary of the
Borrower or such Subsidiary, as the case may be, canceling or amending such
prior certificate.
4.1.2 Delivery of Notes. The Agent shall have received, for the
account of each Lender, its Notes duly executed and delivered by the Borrower.
4.1.3 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 C hereto.
4.1.4 Intercreditor Agreement Certificate. The Borrower shall have
certified to the Creditor Parties under the Intercreditor Agreement that the
Commitment Amount shall be sufficient to meet the Borrower's projected
borrowing needs for the next Seasonal Period and that this Agreement and the
other Agreement Documents shall constitute the sole Replacement
-8-
<PAGE> 9
Seasonal Line of Credit Agreement while this Agreement is outstanding.
4.1.5 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 2.4 and 10.2, if
then invoiced.
4.2 All Borrowings. The obligation of each Lender to fund any Loan
on the occasion of any Borrowing shall be subject to the satisfaction of each
of the conditions precedent set forth in this Section 4.2.
4.2.1 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 of the Credit Agreement 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 Section
5 hereof and in Article VI of the Credit Agreement (excluding, however,
those contained in Section 6.7 of the Credit Agreement) 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);
(b) except as disclosed by the Borrower to the Agent and
the Lenders pursuant to Section 6.7 of the Credit Agreement:
(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 Agreement 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,
-9-
<PAGE> 10
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 pursuant to the
Credit Agreement, and the Borrower shall not be delinquent in the
delivery of any Borrowing Base Certificate pursuant to the Credit
Agreement.
4.2.2 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 4.2.1 are true and correct.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 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 Section 5 and as set forth in Article VI of the Credit Agreement.
5.2 Organization, etc. The Borrower is a corporation validly
organized and existing and in good standing under the laws of the State of its
incorporation, and it 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 and each other Agreement Document to which
it is a party.
5.3 Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement and each other
Agreement Document executed or to be executed by it are within the Borrower's
corporate powers, have been duly authorized by all necessary corporate action,
and do not
(i) contravene its Organic Documents;
(ii) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on
-10-
<PAGE> 11
or affecting it except for such contraventions, which, in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect; or
(iii) result in, or require the creation or imposition of, any
lien on any of its properties other than pursuant to the Security
Documents.
5.4 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 or any other
Agreement Document to which it is a party or for the Borrower's participation
in the consummation of the Restructuring (other than those required for the
provision and perfection of Liens under the Security Documents and those the
failure to obtain or effect could not reasonably be expected to have a Material
Adverse Effect).
5.5 Validity, etc. This Agreement constitutes, and each other
Agreement Document executed by the Borrower will, on the due execution and
delivery thereof, constitute, the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with their respective
terms.
6. Covenants; Security. The Borrower agrees to perform and comply with
each and every covenant and undertaking set forth in Appendix A hereto. The
Borrower shall cause all Obligations hereunder to be secured by the Security
Documents in accordance with the terms thereof and of the Intercreditor
Agreement. The Borrower agrees that this Agreement and the other Agreement
Documents shall constitute the sole Replacement Seasonal Line of Credit
Agreement while this Agreement is outstanding.
7. Events of Default.
7.1 Listing of Events of Default. Each of the following events or
occurrences described in this Section 7.1 shall constitute an "Event of
Default".
(i) 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; or
(ii) any Event of Default (as defined in the Credit Agreement)
shall occur, regardless of whether such Credit Agreement is in full
force and effect; or
(iii) the Credit Agreement shall terminate; or
-11-
<PAGE> 12
(iv) the Borrower shall default in the due performance and
observance of any of its obligations under Section 1.8 or Section 2 of
Appendix A; or
(v) the Borrower shall default in the due performance and
observance of any other agreement contained herein or in any other
Agreement 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.
7.2 Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 8.1.9 of the Credit Agreement) 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.
7.3 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
of the Credit Agreement) 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 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.
8. Agent.
8.1 Actions. Each Lender hereby appoints RBN as its Agent under and
for purposes of this Agreement, the Notes and each other Agreement Document.
Each Lender authorizes the Agent to act on behalf of such Lender under this
Agreement, the Notes and each other Agreement 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
-12-
<PAGE> 13
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 Agreement 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 Agreement Document, or to prosecute or
defend any suit in respect of this Agreement, the Notes or any other Agreement
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.
8.2 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 Agreement
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 Agreement Document, nor to make any
inquiry respecting the performance by the Borrower of its obligations hereunder
or under any other Agreement 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.
8.3 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,
-13-
<PAGE> 14
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 VIII 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
(b) Section 10.2 and Section 10.3 shall continue to inure
to its benefit.
8.4 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.
8.5 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
Agreement 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
Agreement Document.
8.6 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
-14-
<PAGE> 15
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.
9. Definitions.
9.1 Definitions. The following definitions (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 and to all genders):
"Agent" has the meaning set forth in the introductory paragraph hereto.
"Agreement" means, on any date, this Line of Credit 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.
"Agreement Document" means this Agreement, the Notes, the
Intercreditor Agreement, the Security Documents, the Subsidiaries Guaranty and
each other relevant agreement, document or instrument delivered in connection
with this Agreement, as each such agreement, document or instrument may be
amended, supplemented, restated or otherwise modified from time to time.
"Alternate Base Rate" means, on any date 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 the 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.
"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 4.1.2.
-15-
<PAGE> 16
"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 (including, without limitation, the Effective Amount of all
L/C Obligations).
"Borrower" means Thorn Apple Valley, Inc.
"Borrowing" means the Loans made by all Lenders on the same Business
Day and pursuant to the same Borrowing Request in accordance with Section 1.1.
"Borrowing Request" means an Borrowing Request and certificate signed
by an Authorized Officer of the Borrower substantially in the form of Exhibit
B, with appropriate insertions.
"Collateral Agent" is defined in the definition of "Intercreditor
Agreement" in this Section.
"Commitment" is defined in Section 1.1.1.
"Commitment Amount" means, on any date, $15,000,000 as such amount may
be reduced from time to time pursuant to Section 1.2.
"Commitment Termination Date" means February 7, 1998.
"Credit Agreement" means the Amended and Restated Credit Agreement
dated as of September 11, 1996, among the Borrower, the Agent, the Lenders and
the other commercial lending institutions as or may become parties thereto, as
such agreement is amended, supplemented, restated or otherwise modified from
time to time.
"Default" means any Event of Default or any Unmatured Event of Default.
"Effective Date" means the date this Agreement becomes effective
pursuant to Section 10.9.
"Event of Default" is defined in Section 7.1.
"Indemnified Parties" is defined in Section 10.3.
"Indemnified Liabilities" is defined in Section 10.3.
"Intercreditor Agreement" means the Intercreditor Agreement dated as of
September 11, 1996 among RBN as Collateral Agent (in such capacity, the
"Collateral Agent"), RBN as Agent, the Lenders and other lenders to the
Borrower, as such agreement is amended, supplemented, restated or otherwise
modified from time to time.
-16-
<PAGE> 17
"Lender" has the meaning set forth in the introductory paragraph
hereto.
"Loans" is defined in Section 1.1.1.
"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 Agreement Document.
"Organic Document" means, relative to any Person, 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 (including, without
limitation, the Effective Amount of all L/C Obligations) outstanding under the
Credit Agreement.
"Percentage" means, relative to any Lender, the percentage set forth
opposite its signature hereto, as such Percentage may be adjusted from time to
time to reflect assignments made by such Lender of which the Agent has notice
and to which the Agent has consented.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"RBN" is defined in the introductory paragraph hereto.
"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.
"Security Documents" is defined in the Intercreditor Agreement.
"Stated Maturity Date" means February 7, 1998.
-17-
<PAGE> 18
"Unmatured Event of Default" means any condition, occurrence or event
that after notice or lapse of time or both would constitute an Event of
Default.
9.2 Credit Agreement Definitions. Capitalized words used in this
Agreement which are not defined in Section 9.1 above shall have the meaning
ascribed to them in the Credit Agreement.
10. GENERAL.
10.1 Waivers, Amendments, etc. The provisions of this Agreement and
of each other Agreement 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:
(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 Section 2, 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
Agreement 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 Agreement Document
shall, except as may be otherwise stated in such waiver or approval, be
applicable to subsequent transactions. No waiver or approval hereunder
-18-
<PAGE> 19
shall require any similar or dissimilar waiver or approval thereafter to be
granted hereunder.
10.2 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 local counsel, if any, who may be retained by counsel to the
Agent) in connection with:
(a) asset or collateral inspection and auditing and financial
consultants,
(b) the negotiation, preparation, execution and delivery of
this Agreement and of each other Agreement Document, including
schedules and exhibits, and any amendments, waivers, consents,
supplements or other modifications to this Agreement or any other
Agreement Document as may from time to time hereafter be required,
whether or not the transactions contemplated hereby are consummated,
and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Agreement 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 Agreement Documents (but
not including, to the extent reimbursement is prohibited by applicable law, the
Oklahoma real estate mortgage tax). The Borrower also agrees to reimburse the
Agent and each Lender upon demand for all reasonable out-of-pocket expenses
(including Lenders' travel expenses, attorneys' fees and legal expenses)
incurred by the Agent or such Lender in connection with (x) the negotiation of
any restructuring (including the Restructuring) or "work-out," whether or not
consummated, of any Obligations and (y) the enforcement of any Obligations.
10.3 Responsibility and Indemnity. 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 affiliates, 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 or the action
for which indemnification hereunder is sought), including reasonable attorneys'
fees and disbursements (collectively, the "Indemnified
-19-
<PAGE> 20
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 Agreement Document by any of the Indemnified Parties
(including any action by of on behalf of the Borrower as the result of
any determination by the Required Lenders pursuant to Section 4 not
to fund any Borrowing);
(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 Materials; or
(e) the presence on or under, or 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.
10.4 Survival. The obligations of the Borrower under Sections 3.1,
10.2 and 10.3, and the obligations of the Lenders under Section 8.1, shall in
each case survive any termination of this Agreement, the payment in full of all
Obligations and the termination of all Commitments.
-20-
<PAGE> 21
10.5 Notices. All notices and other communications provided to any
party hereto under this Agreement or any other Agreement Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party
at its address, or facsimile number set forth on Schedule 10.5 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.
10.6 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
10.7 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES AND
EACH OTHER AGREEMENT 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 Agreement 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.
10.8 Assigns. This Agreement shall be binding upon and shall inure to
the benefit of, the respective successors and assigns of the parties hereto,
except that the Borrower may not assign its rights or obligations hereunder.
10.9 Execution in Counterparts, Effectiveness, etc.; Waiver. This
Agreement may be executed by the parties hereto in several 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 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 the
conditions set forth in Section 4.1 are met.
10.10 Waiver of Jury Trial. The Agent, each Lender and the Borrower
each waives any right to a trial by jury in any action or proceeding to enforce
or defend any rights under or relating to this Agreement, or any amendment,
instrument, document or agreement delivered or which may in the future be
delivered in connection herewith or arising from any banking relationship
existing in connection with this Agreement, and agrees that any
-21-
<PAGE> 22
such action or proceeding shall be tried before a court and not before a jury.
If the foregoing is acceptable to the Borrower, please indicate
agreement therewith by having an authorized officer execute this Agreement
where indicated below.
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., NEW YORK
BRANCH as Agent
By /s/ Kathleen M. Auda
-------------------------------------
Title:
By /s/ W. Jeffrey Vollack
-------------------------------------
Title:
SENIOR SECURED SEASONAL
LINE OF CREDIT AGREEMENT
S-1
<PAGE> 23
PERCENTAGE LENDERS
-------------------------------------------------------
31.25% COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., NEW YORK
BRANCH
By /s/ Kathleen M. Auda
-------------------------------------
Title:
By /s/ W. Jeffrey Vollack
-------------------------------------
Title:
25% OLD KENT BANK
By /s/ Timothy O'Rourke
-------------------------------------
Title:
25% NATIONAL CITY BANK
By /s/ Marybeth S. Howe
-------------------------------------
Title:
18.75% HARRIS TRUST AND SAVINGS BANK
By /s/ Carl A. Blackham
-------------------------------------
Title:
____
100%
====
Agreed and Accepted:
THORN APPLE VALLEY, INC.
By /s/ Louis Glazier
-------------------------------------
Title:
SENIOR SECURED SEASONAL
LINE OF CREDIT AGREEMENT
S-2
<PAGE> 24
APPENDIX, SCHEDULE AND EXHIBITS
APPENDIX A Covenants Appendix
SCHEDULE 10.5 Notice Addresses
EXHIBIT A Note
EXHIBIT B Form of Borrowing Request
EXHIBIT C Form of Opinion of Messrs.
Honigman Miller Schwartz and Cohn,
counsel to the Borrower (See
Paragraph 4.1.3)
<PAGE> 25
EXHIBIT A
NOTE
$___________ _________________, 1997
FOR VALUE RECEIVED, the undersigned, THORN APPLE VALLEY, INC., a
Michigan corporation (the "Borrower"), promises to pay to the order of
______________________ (the "Lender") on February 7, 1998 the principal sum of
__________________ DOLLARS ($___________) or, if less, the aggregate unpaid
principal amount of all Loans shown on the schedule attached hereto (and any
continuation thereof) made by the Lender pursuant to that certain Senior
Secured Seasonal Line of Credit, dated as of August 5, 1997 (together with all
amendments and other modifications, if any, from time to time thereafter made
thereto, the "Line of Credit"), among the Borrower, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., New York Branch, as Agent, and the various
financial institutions (including the Lender) as are, or may from time to time
become, parties thereto.
The Borrower also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Line of Credit.
Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds to
the account designated by the Agent pursuant to the Line of Credit.
This Note is a Note referred to in, and evidences Indebtedness incurred
under, the Line of Credit, to which reference is made for a description of the
security for this Note and for a statement of the terms and conditions on which
the Borrower is permitted and required to make prepayments and repayments of
principal of the Indebtedness evidenced by this Note and on which such
Indebtedness may be declared to be immediately due and payable. Unless
otherwise defined, terms used herein have the meanings provided in the Line of
Credit.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
<PAGE> 26
THIS NOTE HAS BEEN DELIVERED IN CHICAGO, ILLINOIS AND SHALL BE DEEMED
TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS.
THORN APPLE VALLEY INC.
By_____________________________
Title:
S-2
<PAGE> 27
LOANS AND PRINCIPAL PAYMENTS
________________________________________________________________________________
Amount of Unpaid
Amount of Principal Principal
Loan Made Repaid Balance Made By
--------- --------- --------- -------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
S-3
<PAGE> 28
EXHIBIT B
BORROWING REQUEST
Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A.,
New York Branch
245 Park Avenue
New York, New York 10167
Attention: [Name]
[Title]
THORN APPLE VALLEY, INC.
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to Section 1.3 of
the Senior Secured Seasonal Line of Credit Agreement, dated as of August 5,
1997 (together with all amendments, if any, from time to time made thereto, the
"Line of Credit"), among Thorn Apple Valley, Inc., a Michigan corporation (the
"Borrower"), certain financial institutions and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., New York Branch (the "Agent"). Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
The Borrower hereby requests that a Loan be made in the aggregate
principal amount of $__________ on __________, 19___.
The Borrower hereby acknowledges that, pursuant to Section 4.2.2 of the
Line of Credit, each of the delivery of this Borrowing Request and the
acceptance by the Borrower of the proceeds of the Loans requested hereby
constitute a representation and warranty by the Borrower that, on the date of
such Loans, and before and after giving effect thereto and to the application
of the proceeds therefrom, all statements set forth in Section 4.2.1 are true
and correct in all material respects.
The Borrower agrees that if prior to the time of the Borrowing
requested hereby any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the Agent.
Except to the extent, if any, that prior to the time of the Borrowing requested
hereby the Agent shall receive written notice to the contrary from the
<PAGE> 29
Borrower, each matter certified to herein shall be deemed once again to be
certified as true and correct at the date of such Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the accounts of
the following persons at the financial institutions indicated respectively:
Person to be Paid
Amount to be -------------------------- Name, Address, etc.
Transferred Name Account No. of Transferee Lender
- ------------ ---- ----------- --------------------
$___________ ____________ __________ ____________________
____________________
Attention: _________
$___________ ____________ __________ ____________________
____________________
Attention: _________
Balance of The Borrower ___________ ____________________
such proceeds ____________________
Attention: _________
The Borrower has caused this Borrowing Request to be executed and
delivered, and the certification and warranties contained herein to be made, by
its duly Authorized Officer this ___ day of ___________, 19___.
THORN APPLE VALLEY, INC.
By _______________________________
Title:
S-2
<PAGE> 1
EXHIBIT 10(X)
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT (as amended, restated or otherwise modified from
time to time, this "Amendment Agreement") dated as of August 8, 1997, is among
Thorn Apple Valley, Inc. (the "Company"), COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., NEW YORK BRANCH ("Rabobank"), Old Kent Bank &
Trust Co. ("Old Kent"), National City Bank ("National City"), Harris Trust and
Savings Bank ("Harris Bank") (each of such banks, a "Bank" and such banks
collectively, the "Banks"), Allstate Life Insurance Company ("Allstate"),
Principal Mutual Life Insurance Company ("Principal Mutual") and Great-West
Life & Annuity Insurance Company ("Great-West") (each of such insurance
companies, a "Noteholder," and such insurance companies collective, the
"Noteholders").
RECITALS
WHEREAS, the Company is party to an Amended and Restated Credit Agreement
(the "Credit Agreement") dated as of September 11, 1996 with the Banks, as the
Lenders, and Rabobank, as the Agent for the Lenders, pursuant to which the
Banks agreed to provide the Company with a $90,000,000 revolving credit
facility;
WHEREAS, the Company is party to a Senior Secured Seasonal Line of Credit
Agreement dated as of August 5, 1997 (the "Seasonal Line of Credit Agreement")
with the Banks pursuant to which the Banks agreed to provide the Company with a
$15,000,000 seasonal line of credit facility;
WHEREAS, the Company is party to a Note Agreement dated as of April 1, 1994,
as amended pursuant to an Amendment Agreement dated as of September 11, 1996
(as amended, the "April 1 Note Agreement"), with Allstate pursuant to which
Allstate purchased an aggregate of $15,000,000 of senior notes of the Company;
<PAGE> 2
WHEREAS, the Company is party to a Note Agreement dated as of October 1,
1994, as amended pursuant to an Amendment Agreement dated as of September 11,
1996 (as amended, the "October 1 Note Agreement"), with Allstate pursuant to
which Allstate purchased an aggregate of $8,000,000 of senior notes of the
Company;
WHEREAS, the Company is party to a Note Agreement dated as of May 15,
1995, as amended pursuant to an Amendment Agreement dated as of September 11,
1996 (as amended, the "May 15 Note Agreement" and together with the April 1
Note Agreement and the October 1 Note Agreement, the "Note Agreements"), with
the Noteholders pursuant to which the Noteholders purchased an aggregate of
$42,500,000 of senior notes of the Company;
WHEREAS, the Company is party to a Reimbursement Agreement dated as of
December 1, 1993, as amended on September 11, 1996 (as amended, the "Old Kent
IRB Reimbursement Agreement"), with Old Kent relating to that certain
Irrevocable Transferable Letter of Credit No. 8934 dated December 8, 1993,
issued by Old Kent to PNC Bank, Ohio, National Association, as trustee;
WHEREAS, the Company is party to Reimbursement Agreements dated as of
August 25, 1995, May 25, 1995, July 25, 1995 and July 28, 1988, respectively,
as each such Reimbursement Agreement was amended on September 11, 1996 (as
amended, collectively, the "Old Kent Workers Compensation Reimbursement
Agreements"), with Old Kent relating to that certain Irrevocable Transferable
Letter of Credit No. 10064 dated August 28, 1995, issued by Old Kent to United
Pacific Insurance Company, that certain Irrevocable Transferable Letter of
Credit No. 9911 dated May 26, 1995, issued by Old Kent to the Louisiana
Department of Labor Office of Worker's Compensation, that certain Irrevocable
Transferable Letter of Credit No. 10009 dated July 26, 1995, issued by Old Kent
to United Pacific Insurance Company, and that certain
2
<PAGE> 3
Irrevocable Transferable Letter of Credit No. 5993 dated September 21, 1988,
issued by Old Kent to the Bureau of Worker's Disability Compensation, Office of
the Director;
WHEREAS, the Company, as assignee of the rights and obligations of Doskocil
Companies, Incorporated, is party to a Production Agreement (as amended on May
17, 1996), an Agreement to Supply Boneless Ham Muscles and an Equipment
Agreement, each dated October 14, 1993 (collectively, the "IBP Agreements"),
with IBP, Inc. ("IBP"), pursuant to which (i) IBP constructed a ham processing
facility in Council Bluffs, Iowa (the "Council Bluffs Facility"), (ii) the
Company furnished all of the production equipment used in such facility, (iii)
IBP became obligated to produce at such facility, on an exclusive basis, all
boneless ham products which the Company may require, and (iv) the Company
agreed to pay and/or reimburse IBP for all operating and fixed costs incurred
at the Council Bluffs Facility and to pay IBP an annual management fee;
WHEREAS, the Company has determined that it is in its best interest to
discontinue operations at the Council Bluffs Facility and to terminate the IBP
Agreements as of the fourth quarter of the Company's 1997 fiscal year (the
"Fourth Quarter");
WHEREAS, in connection with the discontinuation of operations at the
Council Bluffs Facility and the termination of the IBP Agreements, the Company
incurred a restructuring charge during the Fourth Quarter in an amount not to
exceed $5,000,000 (the "Restructuring Charge");
WHEREAS, the incurrence of the Restructuring Charge by the Company has
caused the Company to fail to comply with certain covenants contained in the
Credit Agreement, the Seasonal Line of Credit Agreement, the Note Agreements,
the Old Kent IRB Reimbursement Agreement, the Old Kent Workers Compensation
Reimbursement Agreements (collectively, the "Loan Agreements") and may cause
the Company to fail to comply in the future with other covenants and agreements
contained in the Loan Agreements;
3
<PAGE> 4
WHEREAS, the Company, the Banks and the Noteholders desire to make an
agreement that the Restructuring Charge shall not be taken into account in
determining the Company's compliance with the terms, conditions and covenants
contained in the various Loan Agreements;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties to this Amendment Agreement hereby agree as follows:
1. Exclusion of Restructuring Charge. Notwithstanding anything in any of
the Loan Agreements to the contrary, from and after the Effective Date (as
defined below) the Restructuring Charge shall not be taken into account in
determining the Company's compliance with any of the covenants contained in the
Loan Agreements, and calculations necessary to determine the Company's
compliance with any applicable financial covenants contained in the Loan
Agreements shall exclude the Restructuring Charge. If the Company incurs any
restructuring charge in excess of the Restructuring Charge, such additional
restructuring charge shall be included in connection with such determination.
2. Conditions Precedent. This Amendment Agreement shall become effective
when all of the conditions set forth below have been satisfied:
(a) Each of the Banks and the Noteholders shall have received all of
the following, each duly executed and dated the date of its delivery and in
form and substance satisfactory to each of the Banks and the Noteholders, and
each in sufficient number of signed counterparts to provide one for each of the
Banks and Noteholders;
(i) Counterpart originals of this Amendment Agreement, duly
executed by the Company, the Banks and the Noteholders; and
(ii) a certificate from an officer of the Company certifying
that, other than as a result of the Restructuring Charge, no Event of Default
or Default has occurred and is
4
<PAGE> 5
continuing under any of the Loan Agreements and that the representations and
warranties contained in the Loan Agreements are true and correct as of the date
hereof, after giving effect to the transactions contemplated hereby.
(b) The Company shall have provided to each of the Noteholders a
copy of the fully executed and effective Seasonal Line of Credit Agreement.
(c) The Company shall have provided to each of the Noteholders a
calculation of the prepayment premium owed to each of the Noteholders under
Section 2.1(c) of each of the Note Agreements arising from the payment of the
Scheduled Amount (as defined in the applicable Note Agreements).
3. Effectiveness of this Amendment Agreement. Upon satisfaction of the
conditions precedent set forth in Section 2 hereof, this Amendment Agreement
shall be deemed to be effective as of the date of the Restructuring Charge (the
"Effective Date").
4. Miscellaneous. This Amendment Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Illinois. This
Amendment Agreement may be executed in counterparts, and by different parties
on different counterparts, each of which shall constitute one and the same
agreement. Any reference to any Loan Agreement after the date hereof shall be
deemed to refer to such Loan Agreement, as amended hereby, unless expressly
stated otherwise. The Loan Agreements, as amended hereby, shall remain in full
force and effect.
This Amendment Agreement constitutes the final entire agreement by the
parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, and discussions, whether written or
oral.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be executed by their duly authorized officers as of the date first
above written.
THORN APPLE VALLEY, INC.
By: /s/ Louis Glazier
----------------------------------
Title: Vice President Finance and
Administration
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., NEW YORK BRANCH
By: /s/ Kathleen M. Auda
----------------------------------
Title:Vice President
By: /s/ W. Jeffrey Vollack
----------------------------------
Title:Vice President, Manager
OLD KENT BANK & TRUST CO.
By: /s/ Timothy O'Rourke
----------------------------------
Title:Vice President
NATIONAL CITY BANK
By: /s/ Marybeth S. Howe
----------------------------------
Title:Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ Carl A. Blackham
----------------------------------
Title:Vice President
[signatures continued on next page]
6
<PAGE> 7
[signatures continued from previous page]
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ Authorized Signature
-------------------------------------
Title:
----------------------------
By: /s/ Authorized Signature
-------------------------------------
Title:
----------------------------
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Clint Woods
-------------------------------------
Title:Counsel
By: /s/ Christopher Henderson
-------------------------------------
Title:Counsel
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
By: /s/ Ernie P. Friesen
-------------------------------------
Title:Assistant Vice President
By: /s/ F. A. Marr
-------------------------------------
Title:Assistant Vice President
AMENDMENT AGREEMENT
7
<PAGE> 1
Form 10-K THORN APPLE VALLEY, INC. Year Ended
May 30, 1997
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
Coast Refrigerated Trucking Co., Inc........................ North Carolina
Cavanaugh Lakeview Farms, Ltd............................... Michigan
Crown West, Inc............................................. Michigan
Frederick Holdings, Inc..................................... Michigan
Gunsberg Corned Beef Company................................ Michigan
Millers Transport Inc....................................... Utah
National Food Express, Inc.................................. Michigan
Ponca Holdings, Inc......................................... Michigan
Thorn Apple Valley Foreign Sales Corporation................ Virgin Islands (U.S.)
Thorn Apple Valley Holdings of Indiana, Inc................. Michigan
Tillman Holdings, Inc....................................... Michigan
Tri-Miller Packing Co....................................... Utah
Tri-Miller Transportation Company Inc.*..................... Utah
TAV Brands, Inc............................................. Michigan
TAV Swine Buying Stations, Inc.............................. Michigan
</TABLE>
- -------------------------
* 100% of the stock is owned by Tri-Miller Packing Co. and Millers Transport
Inc.
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD]
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 24, 1997, on our audits of the consolidated financial statements and the
financial statement schedule of Thorn Apple Valley, Inc. and Subsidiaries as of
May 30, 1997 and May 31, 1996, and for each of the three years in the period
ended May 30, 1997, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
August 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-30-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-30-1997
<CASH> 6,528,698
<SECURITIES> 0
<RECEIVABLES> 45,776,827
<ALLOWANCES> 888,500
<INVENTORY> 65,115,331
<CURRENT-ASSETS> 126,942,652
<PP&E> 247,642,665
<DEPRECIATION> 111,762,145
<TOTAL-ASSETS> 302,786,457
<CURRENT-LIABILITIES> 70,764,385
<BONDS> 150,128,541
0
0
<COMMON> 611,048
<OTHER-SE> 76,469,483
<TOTAL-LIABILITY-AND-EQUITY> 302,786,457
<SALES> 955,793,588
<TOTAL-REVENUES> 955,793,588
<CGS> 868,826,788
<TOTAL-COSTS> 868,826,788
<OTHER-EXPENSES> 82,059,423
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,758,695
<INCOME-PRETAX> (5,406,241)
<INCOME-TAX> (2,240,000)
<INCOME-CONTINUING> (3,166,241)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,166,241)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
