<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997
REGISTRATION NO. 333-22185
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
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
(810) 213-1000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JOEL DORFMAN
PRESIDENT
26999 CENTRAL PARK BOULEVARD, SUITE 300
SOUTHFIELD, MICHIGAN 48076
(810) 213-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPY TO:
<TABLE>
<C> <C>
DONALD J. KUNZ, ESQ. PAUL R. RENTENBACH, ESQ,
HONIGMAN MILLER SCHWARTZ AND COHN DYKEMA GOSSETT PLLC
2290 FIRST NATIONAL BUILDING 400 RENAISSANCE CENTER
DETROIT, MI 48226 DETROIT, MI 48243
(313) 256-7800 (313) 568-6973
FACSIMILE: (313) 962-0176 FACSIMILE: (313) 568-6915
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED MARCH 20, 1997
PROSPECTUS
$15,000,000
LOGO THORN APPLE VALLEY, INC.
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007
------------------
The Debentures offered by this Prospectus are convertible at any time prior
to maturity, unless previously redeemed or repurchased, into shares of Common
Stock of Thorn Apple Valley, Inc. (the "Company") at a conversion price of
$ per share, subject to adjustment in certain events. On March 19, 1997, the
last reported sale price of the Company's Common Stock, as reported on The
Nasdaq National Market under the symbol "TAVI", was $16.75 per share. See "Price
Range of Common Shares and Dividends".
Interest on the Debentures is payable semi-annually on April 1 and October
1, commencing October 1, 1997, and the Debentures will mature on April 1, 2007,
unless previously redeemed. The Debentures are redeemable at the option of the
Company, at any time in whole or in part, at the redemption prices set forth
herein, plus accrued interest; provided, however, that prior to April 1, 2000,
the Debentures may not be redeemed, other than in connection with a Sale Event
(as defined in this Prospectus), unless the closing sales price of the Common
Stock equals or exceeds 140% of the then current conversion price for any 20
trading days within 30 consecutive trading days prior to the date notice of
redemption is given to holders of the Debentures. In the event of a Repurchase
Event (as defined in this Prospectus), the Company is required to offer to
repurchase the Debentures, in whole or in part, for cash, at 101% of the
principal amount thereof, plus accrued interest. The Debentures will be
unsecured general obligations of the Company subordinate to all existing and
future Senior Indebtedness (as defined in this Prospectus). As of March 1, 1997,
the Company had approximately $154.4 million of Senior Indebtedness
(approximately $ million after giving effect to the application of the
proceeds of this Offering). The Debentures and the related indenture (the
"Indenture") do not prohibit or limit the ability of the Company to incur
additional Senior Indebtedness. See "Description of Debentures".
------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 8.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture............................... 100% % %
- --------------------------------------------------------------------------------------------------------------------------
Total(4).................................... $15,000,000 $ $
==========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from date of issuance.
(2) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(3) Before deducting expenses of the offering payable by the Company estimated
at $ .
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $2,250,000 in principal amount of the Debentures on the same
terms and conditions to cover over-allotments, if any. If all such
additional principal amount of the Debentures is purchased, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting".
------------------
The Debentures are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
Debentures will be made in Detroit, Michigan against payment therefor on or
about , 1997.
------------------
(LOGO)
, 1997
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following regional offices of the
Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; and Chicago Regional Office, Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. In addition,
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Company is an electronic filer, and the Commission maintains a Web
site (located at http://www.sec.gov) that contains reports, proxy statements and
other information regarding registrants that file electronically.
This Prospectus is a part of a Registration Statement filed by the Company
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information included in
such Registration Statement. The Registration Statement may be inspected by
anyone at the office of the Commission without charge, and copies of all or any
part of it may be obtained upon payment of the Commission's charge for copying.
For further information about the Company and its securities, reference is
hereby made to such Registration Statement, and to the exhibits and financial
schedules filed as part thereof or otherwise incorporated herein. Each summary
herein of additional information included in the Registration Statement or any
exhibit thereto is qualified in its entirety by reference to such information or
exhibit.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (and the amendments thereto) filed by the Company
(file number 0-6566) with the Commission are hereby incorporated by reference
and made a part hereof, except as modified or superseded in this Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended May 31, 1996;
and
(b) Quarterly Reports on Form 10-Q for the quarters ended September
20, 1996 and December 13, 1996.
Any statement contained in a document incorporated by reference or deemed
to be incorporated by reference in this Prospectus shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any and all of the information that
has been incorporated by reference in this Prospectus (other than exhibits to
the information that is incorporated by reference unless such exhibits are
expressly incorporated by reference into the information this Prospectus
incorporates). Requests should be directed to the Vice President, Finance and
Administration, 26999 Central Park Boulevard, Suite 300, Southfield, Michigan
48076 (telephone: (810) 213-1000).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY OR THE COMMON STOCK OF THE COMPANY, OR BOTH, AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's Consolidated Financial
Statements and Notes thereto, appearing elsewhere in or incorporated by
reference into this Prospectus. Except as otherwise noted, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
Unless otherwise specified or the context requires otherwise, all references
herein to the Company mean the Company and its consolidated subsidiaries.
THE COMPANY
Thorn Apple Valley, Inc. (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's Processed Meats division engages in the
manufacture 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. In recent years, the
Company has focused on identifying emerging trends in consumer preferences and
on developing Processed Meat 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 product segments. For example, the Company has
developed innovative packaging concepts and products which 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
which are more convenient to use and are healthier than existing product
alternatives.
In recent years, the Company's strategy has been to modernize its
production facilities, to relocate certain production and distribution
facilities to geographically strategic locations and to increase its sales of
higher-margin premium brand Processed Meat products. To this end, the Company
has accomplished the following:
- To respond to consumer demand for certain products and to enhance the
Company's manufacturing efficiencies, in November 1995 the Company began
operating its newly constructed, 171,000 square foot, state-of-the-art
processing facility in Ponca City, Oklahoma, which principally
manufactures 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.
- To increase manufacturing efficiencies and to meet customers' changing
packaging and product variety requirements in the Fresh Meats division,
the Company completed a $40 million renovation of its Fresh Meats
facility located in Detroit, Michigan (the "Frederick Facility").
- To position the Company as a national distributor of Processed Meats, to
strengthen the Company's manufacturing and distribution capabilities in
the southern and western United States and to augment the Company's
premium brand Processed Meats business, in May 1995 the Company acquired
substantially all of the assets (including the brand names "Wilson
Certified(R)" and "Corn King(R)") of the Wilson Retail Division of
Foodbrands America, Inc., a major manufacturer of premium branded
Processed Meats products (the "Wilson Acquisition"). See "Business --
Wilson Acquisition".
- To streamline various corporate operations, including purchasing, sales
and marketing, the Company relocated and consolidated its corporate
headquarters and opened a new 60,000 square foot distribution center in
Edwardsville, Kansas. The Company also closed three older, less efficient
processing facilities, two of which were acquired in the Wilson
Acquisition, and one distribution center.
In connection with the Company's expansion and renovation projects
described above, the Company experienced both planned and unplanned start-up
costs and operating inefficiencies at the Frederick Facility and at the Ponca
City plant in fiscal years 1995 and 1996. In addition, during this period the
Company, and the entire fresh pork industry, experienced a shortage in the
supply of live hogs, a significant increase in the
3
<PAGE> 5
price of live hogs and a reduction in profit margins associated with the
slaughtering of hogs. As a result of the costs associated with the integration
of the Wilson Acquisition, operating inefficiencies and start-up costs
experienced at the Ponca City facility and Frederick Facility, reduced profit
margins experienced by the Company's Fresh Meats division and the effects of the
LIFO method of accounting for inventory, for the fiscal year ended May 31, 1996
the Company experienced a net loss of $21.7 million, compared with net income of
$5.3 million during the prior fiscal year.
While profit margins in the hog slaughtering industry remain low, in fiscal
1997 the Company has experienced improved efficiency and yields in its Fresh
Meats operation, and the Company's Processed Meats Division has benefited from
increases in both sales and profitability resulting from the Wilson Acquisition
and the other changes instituted by the Company. For the 12 weeks ended December
13, 1996 the Company had net income of $2,017,000, or $.33 per share, compared
to a net loss of $1,757,000, or $.30 per share, for the similar period in the
prior fiscal year. For the 28 weeks ended December 13, 1996, the Company had net
income of $305,000, or $.05 per share, compared to a net loss of $6,922,000, or
$1.20 per share, for the similar period in the prior fiscal year. The improved
performance resulted primarily from better margins in the Fresh Meats division
achieved through direct cost reductions from the facility enhancements and from
stronger sales and margins in the Processed Meats division.
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 and Korea.
The Company believes that, under current market conditions, the
restructuring accomplished over the last two years will allow it to continue to
improve its operating performance. The Company is experiencing improved sales
and profitability in its Processed Meats division and increased efficiency and
yield at its Fresh Meats facility. The Company has significant excess capacity
which would allow the Company to increase sales of its products without
significant additional capital expenditures. 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 normal
levels of profitability. The Company also believes that it is well positioned to
benefit from increased sales of products and from improved market conditions in
the Fresh Meats industry, although the Company is unable to predict if and when
market conditions will improve.
THE OFFERING
SECURITIES OFFERED............ $15,000,000 ($17,250,000 if the Underwriters'
over-allotment option is exercised in full)
principal amount of % Convertible
Subordinated Debentures due April 1, 2007 (the
"Debentures").
PAYMENT OF INTEREST........... Semi-annually on each April 1 and October 1,
commencing October 1, 1997, with interest
accruing from the date of issuance.
CONVERSION RIGHTS............. The Debentures are convertible into shares of
the Company's Common Stock, $.10 par value per
share (the "Common Stock"), at any time prior
to maturity, unless previously redeemed or
repurchased, at a conversion price of $ per
share, subject to adjustment in certain events
as described herein. Accordingly, each $1,000
principal amount of Debentures is convertible
into shares of Common Stock, subject to
adjustment, for an aggregate of shares,
representing approximately % of the
outstanding Common Stock on a fully diluted
basis. See "Description of Debentures --
Conversion of Debentures" and "Capitalization".
4
<PAGE> 6
OPTIONAL REDEMPTION........... Redeemable at the Company's option, at any time
in whole or in part, at the redemption prices
set forth herein, plus accrued interest;
provided, however, that prior to April 1, 2000,
the Debentures may not be redeemed (other than
in connection with a Sale Event) unless the
closing sale price of the Common Stock equals
or exceeds 140% of the then current conversion
price for any 20 trading days within 30
consecutive trading days prior to the date of
notice of redemption. A Sale Event is generally
defined to mean (i) the acquisition of 50% or
more of the Company's voting stock by a person
or group (other than a present holder of 5% or
more of the Company's Common Stock, or a group
including such a holder) and (ii) certain
consolidations, mergers or sales of assets of
the Company (excluding certain transactions not
involving a change of control of the Company).
See "Description of Debentures -- Optional
Redemption".
REPURCHASE AT OPTION OF
HOLDERS UPON CERTAIN EVENTS... Upon a Repurchase Event (as defined in this
Prospectus), the Company is required to offer
to repurchase any Debentures delivered to it
for redemption at 101% of the principal amount
thereof, plus accrued interest. A Repurchase
Event is generally defined to include: (i) the
acquisition of 50% or more of the Company's
voting stock by a person (other than a present
holder of 5% or more of the Company's Common
Stock, or a group including such a holder);
(ii) certain changes in the composition of a
majority of the Board of Directors; (iii)
certain consolidations, mergers or sales of
assets of the Company (excluding certain
transactions not involving a change of control
of the Company); and (iv) certain Company
distributions in respect of its capital stock
in excess of 30% of the value of such stock.
The Company may not have sufficient funds to
repurchase the Debentures upon a Repurchase
Event. See "Description of Debentures --
Repurchase Event".
SUBORDINATION................. The Debentures will be subordinated to all
existing and future Senior Indebtedness (as
defined in this Prospectus) of the Company.
There is no limitation on the amount of Senior
Indebtedness that may be incurred by the
Company. See "Description of Debentures --
Subordination of Debentures".
FINANCIAL COVENANTS........... Although the Debentures are cross-defaulted
with the Company's existing secured
indebtedness, neither the Debentures nor the
Indenture require the Company to comply with
any independent financial covenants. See "Risk
Factors -- Lack of Financial Covenants in
Indenture".
USE OF PROCEEDS............... To repay $15.0 million of existing secured
indebtedness. See "Use of Proceeds".
COMMON STOCK OUTSTANDING...... 6,090,969 shares(1).
- -------------------------
(1) Does not include 902,800 shares of Common Stock which, at March 1, 1997,
were reserved for issuance upon exercise of outstanding warrants and stock
options, 544,500 shares of Common Stock reserved for issuance upon exercise
of options available for future grant under the Company's stock option plans
or 370,804 shares of Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
TWENTY-EIGHT
FISCAL YEAR ENDED(1) WEEKS ENDED(1)
------------------------------------------------------ --------------------------
MAY 29, MAY 28, MAY 27, MAY 26, MAY 31, DECEMBER 8, DECEMBER 13,
1992 1993 1994 1995 1996(2) 1995(2) 1996(2)
------- ------- ------- ------- ------- ----------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales....................... $739,733 $729,910 $772,098 $744,542 $ 983,084 $514,908 $545,968
Operating costs and
expenses(3)................... 705,579 707,373 748,542 735,044 1,011,559 521,480 539,011
Income (loss) from operations... 34,154 22,537 23,556 9,498 (28,475) (6,572) 6,957
Interest expense................ 2,573 1,844 2,151 2,259 8,492 4,547 7,002
Net income (loss)............... 21,055 13,863 14,083 5,255 (21,708) (6,922) 305
Earnings (loss) per share of
common stock(4)............... $ 3.75 $ 2.36 $ 2.40 $ 0.91 $ (3.76) $ (1.20) $ 0.05
Dividends per share of common
stock......................... $ .08 $ .20 $ .27 $ .28 $ .07 .$07 $ --
Weighted average shares
outstanding................... 5,615 5,884 5,878 5,755 5,779 5,775 5,925
SELECTED OPERATING DATA:
Hogs slaughtered................ 3,286 3,150 3,230 3,420 3,339 1,727 1,696
Net sales:
Fresh meat products........... $365,748 $336,575 $349,092 $321,844 $ 355,015 $180,302 $202,113
Processed meat products....... 368,384 386,711 416,338 415,358 623,044 331,721 341,036
Other......................... 5,601 6,624 6,668 7,340 5,025 2,885 2,819
-------- -------- -------- -------- ---------- -------- --------
Total........................... $739,733 $729,910 $772,098 $744,542 $ 983,084 $514,908 $545,968
======== ======== ======== ======== ========== ======== ========
OTHER DATA:
EBITDA(5)....................... $ 42,122 $ 30,796 $ 32,714 $ 20,289 $ (10,687) $ 2,107 $ 17,053
EBIT(6)......................... 35,013 23,417 24,451 10,459 (26,066) (5,939) 7,656
Ratio of EBITDA to fixed
charges(7).................... 5.8x 4.9x 4.4x 2.2x (0.6x) 0.2x 1.4x
Ratio of EBIT to fixed
charges(8).................... 4.8x 3.7x 3.3x 1.1x (1.5x) (0.7x) 0.7x
Ratio of earnings (loss) to
fixed charges(9).............. 5.4x 4.4x 4.0x 1.9x (1.0x) (0.2x) 1.05x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 13, 1996(2)
--------------------------
ACTUAL AS ADJUSTED(10)
------ ---------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 74,686
Total assets.............................................. 333,820
Long term debt (excluding current portion)................ 165,448
Shareholders' equity...................................... 80,118
</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 year and all
other years presented in this table were 52-week years. The Company's
second fiscal quarter consists of twelve weeks and each subsequent fiscal
quarter consists of twelve weeks, except that the fourth quarter consists
of thirteen weeks in the case of a 53-week fiscal year.
(2) On May 31, 1995, the Company completed the Wilson Acquisition. The results
of operations of the Company for fiscal 1996 reflect a full year of
operations related to the Wilson Acquisition.
(3) Operating costs and expenses for fiscal 1995 includes a 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 shutdown of this facility
was substantially completed by the end of May 1995. 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 the 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.
6
<PAGE> 8
(4) Restated at May 28, 1993 and May 29, 1992 to reflect a 3-for-2 stock split
in December 1992 and at May 29, 1992 to reflect a 3-for-2 stock split in
June 1991.
(5) EBITDA represents earnings before interest, taxes, depreciation,
amortization of intangible assets and deferred financing costs, and
extraordinary items. The Company's various secured lenders use EBITDA as a
method of measuring and analyzing the financial performance of the Company,
because it eliminates the effects of interest, depreciation and
amortization of intangibles on net income. EBITDA should not be considered
as an alternative to net income as an indicator of the Company's operating
performances or to cash flows as a measure of the Company's liquidity. The
LIFO method of accounting for inventories had the effect of decreasing
income (loss) from operations by approximately $13,734,000 and net income
(loss) (after income taxes) by approximately $8,927,000 at May 31, 1996,
respectively. For the fiscal year ended May 26, 1995, the LIFO method of
accounting for inventories had the effect of increasing income (loss) from
operations by approximately $1,972,000 and net income (loss) by
approximately $1,282,000, respectively.
(6) EBIT represents earnings before interest and taxes.
(7) The ratio of EBITDA to fixed charges was computed by dividing EBITDA by
fixed charges. For this purpose "fixed charges" consist of interest expense
on indebtedness, amortization of intangible assets and deferred financing
costs, and minimum net rent payments.
(8) The ratio EBIT to fixed charges was computed by dividing EBIT by fixed
charges. For this purpose "EBIT" represents earnings before interest and
taxes. For this purpose "fixed charges" consist of interest expense on
indebtedness, amortization of intangible assets and deferred financing
costs, and minimum net rent payments.
(9) The ratio of earnings (loss) to fixed charges was computed by dividing
earnings (loss) by fixed charges. For this purpose "earnings (loss)"
consists of earnings (loss) before income taxes, extraordinary items and
fixed charges. For this purpose "fixed charges" consist of interest expense
on indebtedness, amortization of intangible assets and deferred financing
costs, and minimum net rent payments.
(10) As adjusted to give effect to the sale of $15,000,000 principal amount of
Debentures offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization".
7
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as other information included elsewhere herein or incorporated by
reference, prior to purchasing the Debentures offered hereby.
RECENT RESULTS OF OPERATIONS; RISK OF DEFAULT UNDER SECURED INDEBTEDNESS
The Company incurred a net loss of $21.7 million in fiscal 1996 and,
following the end of fiscal 1996, the Company was in default under its borrowing
arrangements. On September 11, 1996, the Company restructured its borrowing
arrangements and granted its lenders security interests in substantially all of
the Company's assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition". For the 28 weeks
ended December 13, 1996, the Company had net income of $305,000, but on December
13, 1996, the Company was in non-compliance with one financial covenant relating
to its secured indebtedness. While the Company obtained waivers of such
non-compliance from the applicable lenders under the secured indebtedness, such
lenders have no obligation to provide waivers of future non-compliance with such
covenants and no assurance can be given that the Company could obtain waivers if
the Company were to be in non-compliance with such covenants in the future.
While the Company is currently in compliance with all financial covenants under
its secured indebtedness, no assurance can be given that the Company will
continue to remain in compliance. If the Company were to be in non-compliance
with such financial covenants in the future and the lenders under the secured
indebtedness were to fail to waive such non-compliance, such non-compliance
would have a material adverse effect on the Company. See "Risk Factors --
Subordination of Debentures; No Limitation on Senior Indebtedness". In addition,
although the Company reported net income of $305,000 for the 28 weeks ended
December 13, 1996, the Company expects to report a net loss of between $1.7
million and $1.9 million for the 12 weeks ended March 7, 1997, and no assurance
can be given that the Company will report a profit for the entire 1997 fiscal
year or for any other future period.
MARKET CONSIDERATIONS; RAW MATERIALS
The Company's results of operations and financial condition are affected by
the costs and supply of live hogs and by the Company's selling prices for many
of its products, which are determined by constantly changing market forces of
supply and demand, over which the Company has limited control. In addition,
profit margins in the Fresh Meats industry, which depend in part on the
relationship between the cost of live hogs and the selling prices of primal pork
cuts, may fluctuate significantly based upon various market factors over which
the Company has limited control. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Raw Materials".
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. There can be no
assurance that the Company will be able to compete successfully in the future.
See "Business -- Competition".
SUBORDINATION OF DEBENTURES; NO LIMITATION ON SENIOR INDEBTEDNESS
The Debentures will be subordinate in right of payment to all present and
future Senior Indebtedness and will not rank senior to any debt of the Company
unless such debt is expressly subordinated to the Debentures. As of ,
1997, after giving effect to this offering and the application of the estimated
net proceeds therefrom, Senior Indebtedness would have been approximately
million. In the event of a default in the payment of the principal of or
interest on any Senior Indebtedness of the Company, the Company is prohibited
from making any payment with respect to the principal of or interest or premium,
if any, on the Debentures unless and until such default has been cured or waived
or all Senior Indebtedness has been paid in full. Furthermore, the Indenture
does not prohibit or limit the ability of the Company to incur additional Senior
8
<PAGE> 10
Indebtedness, including Senior Indebtedness incurred in a highly leveraged
transaction initiated by the Company's management or proposed by significant
shareholders. Consequently, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's ability to service the debt evidenced by the Debentures. In addition,
by reason of such subordination, in the event of any insolvency, receivership,
liquidation or other reorganization of the Company, holders of Senior
Indebtedness must be paid in full before the holders of the Debentures may be
paid. Accordingly, there may be insufficient assets remaining after payment of
prior claims to pay amounts due on the Debentures. See "Summary -- Summary
Consolidated Financial Information", "Selected Consolidated Financial Data",
"Description of Debentures -- Subordination of Debentures" and Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Condition".
LACK OF FINANCIAL COVENANTS IN INDENTURE
Many commercial loan agreements mandate compliance by the borrower with
certain financial covenants, such as financial statement ratios, net worth
requirements, working capital requirements, interest and fixed charge coverage
levels, liquidity or cash flow levels. These requirements are intended to
monitor the financial condition of the borrower, provide the lender with a
degree of comfort regarding the performance of the borrower and advance warning
of certain problems, and require the borrower to operate within certain
financial guidelines. Other loan documents, most notably unsecured debt
instruments, do not necessarily include these requirements. Although the
Indenture does not mandate compliance with financial covenants, the Company's
secured indebtedness does mandate compliance with certain financial covenants
which affect, among other things, the Company's ability to draw upon its line of
credit facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition". The Indenture does
not contain any provisions that would provide protection to holders of the
Debentures against a sudden and dramatic decline in credit quality of the
Company for any reason, including any takeover, recapitalization or similar
restructuring, including a highly leveraged transaction initiated by the
Company's management or proposed by significant shareholders.
REDEMPTION OF DEBENTURES
The Debentures may be redeemed in whole or in part by the Company at the
redemption prices set forth herein, plus accrued interest to the date of
redemption; provided, that prior to April 1, 2000, the Debentures may not be
redeemed (other than in connection with a Sale Event) unless the closing sale
price of the Common Stock, as reported on The Nasdaq National Market, equals or
exceeds 140% of the current conversion price for any 20 trading days within 30
consecutive trading days prior to the date notice of redemption is given to
holders of the Debentures. In the event of redemption, holders of the Debentures
may receive from the Company less than such holders would have received in the
open market absent such redemption provisions. In addition, holders may not be
able to locate an investment opportunity with interest rate and provisions which
are similar to the Debentures at such time. See "Description of Debentures --
Optional Redemption".
Upon a Repurchase Event, the Company is required to offer to repurchase any
Debentures delivered to it for redemption at 101% of the principal amount
thereof, plus accrued interest. The requirement to redeem the Debentures at a
premium may have a deterrent effect on a potential takeover of the Company and,
consequently, may have a negative effect on the price of the Common Stock into
which the Debentures are convertible. See "Description of Debentures --
Repurchase Event".
CONTROL BY PRESENT SHAREHOLDERS
Mr. Henry S Dorfman, Chairman of the Board of Directors of the Company,
beneficially owns an aggregate of 2,701,061 shares of the Common Stock, or 44.3%
of the shares issued and outstanding as of March 1, 1997. As a result, Mr. Henry
S Dorfman has the ability to influence significantly most matters requiring
approval by shareholders of the Company, including the election of the directors
of the Company.
9
<PAGE> 11
NO ASSURANCE OF A PUBLIC MARKET
No assurance can be given that an active market for the Debentures will
develop or, if developed, will continue. If no active market develops, it may be
difficult for purchasers to resell their Debentures. The representative of the
Underwriters has advised the Company that it intends to make a market for the
Debentures although it is under no obligation to continue to do so and were such
market making to be discontinued, investors would encounter difficulty effecting
purchase or sale transactions in the absence of alternative market makers. See
"Underwriting".
10
<PAGE> 12
THE COMPANY
Thorn Apple Valley, Inc. is a major producer of processed meat and poultry
products and is one of the largest slaughterers of hogs and sellers of related
fresh pork products 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. In 1984, the Company changed its
corporate name from Frederick & Herrud, Inc. to Thorn Apple Valley, Inc.
The Company's principal executive offices are located at 26999 Central Park
Boulevard, Suite 300, Southfield, Michigan 48076 (telephone number: (810)
213-1000).
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures offered by the Company are estimated to be $ million ($
million if the Underwriters' over-allotment option is exercised in full) after
deducting underwriting discounts and commissions and estimated offering
expenses.
The Company intends to use the net proceeds to repay (on a pro rata basis
based on the amounts outstanding at the time of repayment) amounts owing under
its (i) $90.0 million revolving credit facility, (ii) $15.0 million 6.45% Notes
due April 21, 2006, (iii) $8.0 million 8.42% Notes due October 1, 2003, (iv)
$42.5 million 7.58% Notes due May 15, 2005, and (v) $5.5 million limited
obligation industrial revenue bonds. The revolving credit facility accrues
interest at the rate of prime plus one quarter percent and terminates on May 30,
1998. The 6.45% Notes currently accrue interest at the rate of 8.45%; provided,
however, that such rate will be reduced to 7.45% upon completion of this
offering. The 8.42% Notes currently accrue interest at the rate of 10.42%;
provided, however, that such rate will be reduced to 9.42% upon completion of
this offering. The 7.58% Notes currently accrue interest at the rate of 9.58%;
provided, however that such rate will be reduced to 8.58% upon completion of
this offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Financial Condition".
11
<PAGE> 13
PRICE RANGE OF COMMON SHARES AND DIVIDENDS
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "TAVI". The following table sets forth, for the periods indicated,
the high and low sales prices of the Company's Common Stock on The Nasdaq
National Market and the dividends per share paid by the Company.
<TABLE>
<CAPTION>
SALES PRICES DIVIDENDS PER SHARE
---------------- -------------------
HIGH LOW
---- ---
<S> <C> <C> <C>
FISCAL 1995 (ENDED MAY 26, 1995)
First quarter............................................ $25.25 $22.00 $.07
Second quarter........................................... 30.25 23.00 .07
Third quarter............................................ 30.00 20.00 .07
Fourth quarter........................................... 22.00 16.62 .07
FISCAL 1996 (ENDED MAY 31, 1996)
First quarter............................................ 23.50 18.00 .07
Second quarter........................................... 19.50 15.12 --
Third quarter............................................ 17.75 14.00 --
Fourth quarter........................................... 15.75 10.25 --
FISCAL 1997 (ENDING MAY 30, 1997)
First quarter............................................ 14.25 8.75 --
Second quarter........................................... 15.75 11.38 --
Third quarter............................................ 16.75 13.13 --
Fourth quarter (through March 19, 1997).................. 16.75 12.25 --
</TABLE>
On March 19, 1997, the last reported sales price of the Company's Common
Stock, as reported on The Nasdaq National Market under the symbol "TAVI", was
$16.75 per share. As of March 1, 1997, there were approximately 525 record
holders of the Common Stock based on the records of the Company's transfer
agent.
The Company has not paid any cash dividends on its Common Stock since
October 1995 and presently expects to retain all of its earnings to fund the
growth of its business. In addition, under the terms of the Company's secured
indebtedness, the Company is prohibited from paying dividends on its Common
Stock. As a result, the Company has no present intention of paying any cash
dividends on its Common Stock in the foreseeable future.
Any future determination as to the payment of dividends will be at the
discretion of the Company's Board of Directors and will depend on the Company's
financial condition, results of operations, capital requirements, compliance
with charter and contractual restrictions and such other factors as the Board of
Directors deems relevant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Capital Stock".
12
<PAGE> 14
CAPITALIZATION
The table sets forth the capitalization of the Company at December 13, 1996
and as adjusted to give effect to the issuance and sale of the Debentures
offered hereby and the proposed application of the estimated net proceeds
therefrom. See "Use of Proceeds". This table should be read in conjunction with
the Company's Consolidated Financial Statements and related notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 13, 1996
-----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable............................................. $ 25
Current portion of long-term debt......................... 4,578
--------
Total short-term debt (1).............................. $ 4,603
========
Long-term debt (excluding current portion):
Secured indebtedness...................................... $165,448
Subordinated unsecured indebtedness....................... --
--------
Total long-term debt (2)............................... $165,448
--------
Shareholders' equity:
Preferred stock, 200,000 shares authorized, none issued... -- --
Common stock, 20,000,000 shares authorized, 6,075,152 and
6,075,152 shares outstanding, respectively............. $ 607 $ 607
Capital in excess of par value............................ 10,070 10,070
Retained earnings......................................... 69,440 69,440
-------- -------
Total shareholders' equity............................. 80,117 80,117
-------- -------
Total capitalization................................... $245,565 $
======== =======
</TABLE>
- -------------------------
(1) See Notes 3 and 6 of Notes to the Company's Consolidated Financial
Statements for additional information relating to the Company's short-term
debt obligations.
(2) See Note 6 of Notes to the Company's Consolidated Financial Statements for
additional information relating to the Company's long term debt obligations.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the fiscal
years indicated were derived from the Company's audited Consolidated Financial
Statements. The selected consolidated financial data for the twenty-eight weeks
ended December 8, 1995 and December 13, 1996 were derived from unaudited
consolidated financial statements appearing elsewhere herein, which include, in
the opinion of management, all adjustments, consisting of normal adjustments,
necessary to present fairly the results of operations and financial position of
the Company for the periods and dates presented. The results for the
twenty-eight weeks ended December 13, 1996 are not necessarily indicative of the
results to be expected for fiscal 1997. This financial data should be read in
conjunction with the Company's Consolidated Financial Statements, including the
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWENTY-EIGHT
FISCAL YEAR ENDED(1) WEEKS ENDED(1)
--------------------------------------------------------- --------------------------
MAY 29, MAY 28, MAY 27, MAY 26, MAY 31, DECEMBER 8, DECEMBER 13,
1992 1993 1994 1995 1996(2) 1995(2) 1996(2)
------- ------- ------- ------- ------- ----------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales......................... $739,733 $729,910 $772,098 $744,542 $ 983,084 $514,908 $545,968
-------- -------- -------- -------- ---------- -------- --------
Operating costs and expenses(3)
Cost of goods sold, including
delivery costs................ 654,844 655,147 693,784 669,068 932,131 476,745 496,403
Selling......................... 21,502 21,996 24,156 25,377 37,533 21,262 17,576
General and administrative...... 22,124 22,851 22,339 22,912 26,516 15,427 15,635
Depreciation and amortization... 7,109 7,379 8,263 9,830 15,379 8,046 9,397
Restructuring charge............ -- -- -- 7,857(3) -- -- --
-------- -------- -------- -------- ---------- -------- --------
705,579 707,373 748,542 735,044 1,011,559 521,480 539,011
-------- -------- -------- -------- ---------- -------- --------
Income (loss) from operations..... 34,154 22,537 23,556 9,498 (28,475) (6,572) 6,957
-------- -------- -------- -------- ---------- -------- --------
Other expenses (income):
Interest........................ 2,573 1,844 2,151 2,259 8,492 4,547 7,002
Other, net...................... (859) (880) (895) (961) (2,409) (633) (699)
-------- -------- -------- -------- ---------- -------- --------
1,714 964 1,256 1,298 6,083 3,914 6,303
-------- -------- -------- -------- ---------- -------- --------
Income (loss) before income
taxes........................... 32,440 21,573 22,300 8,200 (34,558) (10,486) 654
Provision (benefit) for income
taxes........................... 11,385 7,710 8,217 2,945 (12,850) (3,564) 349
-------- -------- -------- -------- ---------- -------- --------
Net income (loss)................. $ 21,055 $ 13,863 $ 14,083 $ 5,255 $ (21,708) $ (6,922) $ 305
======== ======== ======== ======== ========== ======== ========
Earnings (loss) per share of
common stock(4)............... $ 3.75 $ 2.36 $ 2.40 $ 0.91 $ (3.76) $ (1.20) $ 0.05
======== ======== ======== ======== ========== ======== ========
Dividends per share of common
stock......................... $ .08 $ .20 $ .27 $ .28 $ .07 $ .07 $ --
Weighted average shares
outstanding................... 5,615 5,884 5,878 5,755 5,779 5,775 5,925
SELECTED OPERATING DATA:
Hogs slaughtered................ 3,286 3,150 3,230 3,420 3,339 1,727 1,696
Net sales:
Fresh meat products........... $365,748 $336,575 $349,092 $321,844 $ 355,015 $180,302 $202,113
Processed meat products....... 368,384 386,711 416,338 415,358 623,044 331,721 341,036
Other......................... 5,601 6,624 6,668 7,340 5,025 2,885 2,819
-------- -------- -------- -------- ---------- -------- --------
Total........................... $739,733 $729,910 $772,098 $744,542 $ 983,084 $514,908 $545,968
======== ======== ======== ======== ========== ======== ========
OTHER DATA:
EBITDA(5)....................... $ 42,122 $ 30,796 $ 32,714 $ 20,289 $ (10,687) $ 2,107 $ 17,053
EBIT(6)......................... 35,013 23,417 24,451 10,459 (26,066) (5,939) 7,656
Ratio of EBITDA to fixed
charges(7).................... 5.8x 4.9x 4.4x 2.2x (0.6x) 0.2x 1.4x
Ratio of EBIT to fixed
charges(8).................... 4.8x 3.7x 3.3x 1.1x (1.5x) (0.7x) 0.7x
Ratio of earnings (loss) to
fixed charges(9).............. 5.4x 4.4x 4.0x 1.9x (1.0x) (0.2x) 1.05x
BALANCE SHEET DATA(2):
Working Capital................. $ 50,338 $ 42,467 $ 51,830 $ 31,757 $ 59,043 $ 67,841 $ 74,686
Total assets.................... 132,600 143,949 185,442 204,296 325,616 338,299 333,820
Long term debt (excluding
current portion).............. 15,069 8,844 27,937 35,465 159,809 154,735 165,448
Shareholders' equity............ 72,886 86,309 96,170 98,596 76,725 91,399 80,118
</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 year and all
other years presented in this table were 52-week years. The Company's second
fiscal
14
<PAGE> 16
quarter consists of twelve weeks and each subsequent fiscal quarter consists
of twelve weeks, except that the fourth quarter consists of thirteen weeks
in the case of a 53-week fiscal year.
(2) On May 31, 1995, the Company completed the Wilson Acquisition. The results
of operations of the Company for fiscal 1996 reflect a full year of
operations related to the Wilson Acquisition.
(3) During the fourth quarter of fiscal 1995, the Company recorded a 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 shutdown of this facility was
substantially completed by the end of May 1995. 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 the 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.
(4) Restated at May 28, 1993 and May 29, 1992 to reflect a 3-for-2 stock split
in December 1992 and at May 29, 1992 to reflect a 3-for-2 stock split in
June 1991.
(5) EBITDA represents earnings before interest, taxes, depreciation,
amortization of intangible assets and deferred financing costs, and
extraordinary items. The Company's various secured lenders use EBITDA as a
method of measuring and analyzing the financial performance of the Company,
because it eliminates the effects of interest, depreciation and amortization
of intangibles on net income. EBITDA should not be considered as an
alternative to net income as an indicator of the Company's operating
performances or to cash flows as a measure of the Company's liquidity. The
LIFO method of accounting for inventories had the effect of decreasing
income (loss) from operations by approximately $13,734,000 and net income
(loss) (after income taxes) by approximately $8,927,000 at May 31, 1996,
respectively. For the fiscal year ended May 26, 1995, the LIFO method of
accounting for inventories had the effect of increasing income (loss) from
operations by approximately $1,972,000 and net income (loss) by
approximately $1,282,000, respectively.
(6) EBIT represents earnings before interest and taxes.
(7) The ratio of EBITDA to fixed charges was computed by dividing EBITDA by
fixed charges. For this purpose "fixed charges" consist of interest expense
on indebtedness, amortization of intangible assets and deferred financing
costs, and minimum net rent payments.
(8) The ratio EBIT to fixed charges was computed by dividing EBIT by fixed
charges. For this purpose "EBIT" represents earnings before interest and
taxes. For this purpose "fixed charges" consist of interest expense on
indebtedness, amortization of intangible assets and deferred financing
costs, and minimum net rent payments.
(9) The ratio of earnings (loss) to fixed charges was computed by dividing
earnings (loss) by fixed charges. For this purpose "earnings (loss)"
consists of earnings (loss) before income taxes, extraordinary item and
fixed charges. For this purpose "fixed charges" consist of interest expense
on indebtedness, amortization of intangible assets and deferred financing
costs, and minimum net rent payments.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
CURRENT PERIOD PERFORMANCE
Although final results for the 12 weeks ended March 7, 1997 are not
available as of the date of this Prospectus, based on preliminary indications
management of the Company expects to report a net loss of between $1.7 million
and $1.9 million, or between $.28 and $.31 per share for such period, compared
to a net loss of $3.7 million, or $.63 per share, for the 12 weeks ended March
1, 1996. For the 40 weeks ended March 7, 1997, management of the Company expects
to report a net loss of between $1.4 million and $1.6 million, or between $.23
and $.27 per share, compared to a net loss of $10.6 million, or $1.83 per share,
in the comparable period of the prior fiscal year.
RESULTS OF OPERATIONS
The following discussion analyzes material changes in the financial
information of the Company during the Company's last two fiscal years and during
the first 28 weeks of fiscal 1997.
Twenty-Eight Weeks ended December 13, 1996 as Compared to Twenty-Eight
Weeks ended December 8, 1995
The Company's net income in the twenty-eight weeks ended December 13, 1996
increased by $7.2 million to net income of $.3 million from a net loss of $6.9
million for the prior year period. The increase in net income for the first two
quarters of fiscal 1997 is attributable to increased sales and improved margins
in the Company's Processed Meats and Fresh Meats divisions. The Company's
Processed Meats operations have benefitted from the modern design, strategic
geographical location, plant operating efficiencies and simplified product mix
at the Ponca City plant. Such changes have resulted in significantly lower
direct costs leading to improved profit margins. While the Company continued to
improve its operating efficiencies at its Fresh Meats facility in the first two
quarters of fiscal 1997, the substantial gains were somewhat offset by a further
deterioration of profit margins in the Fresh Meats division. 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 normal levels of profitability.
Net sales for the first two quarters of fiscal 1997 increased by $31.0
million, or 6.0%. The increase in net sales dollars was principally the result
of increased average selling prices in the Company's Processed Meats and Fresh
Meats divisions of 13.7% and 14.4%, respectively. Partially offsetting the
increased average selling prices was a reduction in Processed Meats and Fresh
Meats tonnage shipped of 9.6% and 2.0%, respectively. The Company's Processed
Meats sales (in pounds) decreased as a result of the Company's elimination of
certain lower margin product lines, including reduction in sales of some private
label products. The Company's Fresh Meats sales (in pounds) were down primarily
due to lower slaughter levels resulting from an industry wide shortage of live
hogs available for slaughter. The increase in average selling prices primarily
reflects an increase of approximately 22% in the cost of live hogs, the
Company's primary raw material.
16
<PAGE> 18
Cost of goods sold (including delivery costs) increased by $19.7 million,
or 4.1%, mainly as the result of the increased cost of live hogs referred to
above, which was partially offset by a reduction in Processed Meats and Fresh
Meats sales volume (in pounds) and increased Processed Meats and Fresh Meats
plant operating efficiencies. As a percentage of net sales, costs of goods sold
decreased to 90.9% from 92.6%.
Selling expenses decreased $3.7 million, or 17.3%, principally as a result
of lower promotional expenses and a reduction in the operating costs associated
with the sales department resulting from the completion of the integration of
the acquired Wilson sales function into the Company's business. As a percentage
of net sales, selling expenses decreased to 3.2% from 4.1%.
General and administrative expenses remained relatively unchanged from the
prior year period. As a percentage of net sales, general and administrative
expenses decreased slightly to 2.9% from 3.0%.
Interest expense increased $2.4 million, or 54.0%. The increase was
attributable to an increase in borrowings under the Company's revolving credit
agreement that primarily was the result of the Company's fiscal 1996 operating
losses and capital expenditures related to the Ponca City plant, and increased
interest rates related to the restructuring of the Company's long-term revolving
credit agreement and private placement note agreements in September, 1996.
The provision for income taxes increased by $3.9 million, primarily due to
the increase in pre-tax income from operations of $11.1 million to income of $.6
million from a loss of $10.5 million in the comparable prior period. The
Company's effective tax rate increased to 53.4% from (34.0%).
Earnings per share of common stock increased by $1.25 per share to income
of $.05 per share from a net loss of $1.20 per share, due to increased
profitability resulting from the factors discussed above.
The results for the twenty-eight weeks ended December 13, 1996 are not
necessarily indicative of the results to be expected for fiscal 1997.
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 prior year's
restructuring charge.) The decrease in profits was primarily attributable to
lower Fresh Meats and Processed Meats profit margins and higher overhead costs
in both the Fresh Meats and Processed Meats 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 facility's operations and high rate of speed
at which the facility 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 (in
pounds) 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 division'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 (in
pounds) was down primarily due to the closing, during fiscal
17
<PAGE> 19
1995, of the Company's Tri-Miller facility and to a large increase in hams 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 Frederick 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 Frederick 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.
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 (37.5%) 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 in fiscal 1996 per share, due to decreased profitability resulting
from the factors discussed above.
Fiscal 1995 as Compared to Fiscal 1994 (52 week fiscal year compared to 52
week fiscal year)
The Company's net income for fiscal 1995 decreased 62.7% to $5.3 million,
as compared with net income of $14.1 million in fiscal 1994. The Company accrued
a restructuring charge primarily related to the closing of the Company's
Tri-Miller Packing facility in Hyrum, Utah. The restructuring charge negatively
impacted net income by approximately $5.0 million. (See Note 12 to the Notes to
the Consolidated Financial Statements for additional information on the
restructuring charge). The LIFO (last-in, first-out) method of accounting for
inventories had the effect after taxes of increasing earnings for fiscal 1995
and fiscal 1994 by $1,282,000 and $538,000, respectively.
The Company's results (exclusive of the restructuring charge) during 1995
were negatively impacted from decreased operating margins in both the Processed
Meats and Fresh Meats divisions. The Processed Meats division margins decreased
primarily from continued competitive industry pressures. The Fresh Meats
division margins decreased as a result of higher operating costs associated with
the renovation and expansion project combined with continued competitive
industry margin pressures. The implementation of a very innovative and complex
processing floor at the Company's Frederick Facility was significantly more
involved and difficult than the Company anticipated.
Net sales in fiscal 1995 decreased $27.6 million or 3.6%, as compared with
fiscal 1994 levels. The decrease was due primarily to decreases of 7.2% and 8.3%
in Processed Meats and Fresh Meats average selling prices, respectively.
Offsetting the lower average selling prices were increases of 7.5% and .6% in
Processed
18
<PAGE> 20
Meats and Fresh Meats tonnage shipped, respectively. The decrease in selling
prices was the result of a decrease in raw material costs combined with
increased competitive pressure on the Company's Processed Meats pricing
structure. The increase in the Processed Meats sales (in pounds) was the result
of the continued emphasis by the Company on expanding the distribution of these
products.
Cost of goods sold (including delivery costs) decreased $24.7 million or
3.6%. The decrease was primarily the result of the decrease of approximately
17.5% in the average cost of live hogs purchased, which was partially offset by
additional costs associated with the increase in unit volume. As a percentage of
net sales, cost of goods sold remained at 89.9% for fiscal 1995, as in fiscal
1994.
Selling expenses increased in fiscal 1995 by $1.2 million or 5.1%, as a
result of increased marketing expenditures to enhance the distribution of the
Company's products to more retail stores, particularly, in the southwestern and
western regions of the United States. As a percentage of net sales, selling
expenses increased to 3.4% in fiscal 1995 from 3.1% in fiscal 1994.
General and administrative expenses increased slightly by $.6 million or
2.6% primarily due to inflationary cost increases. As a percentage of net sales,
general and administrative expenses increased to 3.1% from 2.9%.
Interest expense increased $.1 million or 5.0%, as a result of an increase
in the Company's average outstanding borrowings. The increase in debt was
primarily the result of increased long-term borrowings resulting from the
increase in capital expenditures.
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 is a party to secured lending agreements with four financial
institutions and with three institutional lenders, as well as certain industrial
revenue bond agreements. The Company's secured lending agreements were
restructured on September 11, 1996. Prior to the restructuring, the Company had
an $80 million unsecured revolving credit agreement with the four financial
institutions, as well as a temporary additional $20 million line of credit from
the four financial institutions. The lines of credit bore interest at rates no
higher than the prime rate. The Company also had outstanding balances on three
separate issues of unsecured notes in private placements to institutional
investors. The first outstanding issue, issued on April 1, 1994, was in the
principal amount of $15,000,000 and bore interest at a fixed rate of 6.45% per
annum. The second outstanding issue, issued on October 1, 1994, was in the
principal amount of $8,000,000 and bore interest at a fixed rate of 8.42% per
annum. The third outstanding issue, issued on May 30, 1995, was in the principal
amount of $42,500,000 and bore interest at a fixed rate of 7.58% per annum.
Prior to the loan restructuring, the Company was in non-compliance with
certain financial covenants relating to its unsecured revolving credit
agreement, its private placement note agreements and its $5.5 million limited
obligation revenue bond agreement. On September 11, 1996 the Company entered
into agreements with the participating lenders to restructure the Company's
revolving credit and note agreement facilities and one of the Company's limited
revenue industrial bonds. As part of that restructuring, the lenders waived past
non-compliances with financial covenants and those covenants were modified on a
going-forward basis. The following is a description of the significant changes
in the terms of the Company's borrowing agreements:
1. Under the revolving credit agreement the $80 million credit limit
was increased to $90 million and the interest under such agreement
is payable on a monthly basis at an interest rate equal to prime
plus one quarter percent.
2. The interest rates on the private placement note agreements were
increased by two percentage points.
3. A $20 million short-term seasonal line of credit was provided,
which expired on January 31, 1997, bore interest at an interest
rate equal to prime plus two percent and was secured by a first
lien on
19
<PAGE> 21
substantially all of the Company's assets. Although this seasonal
line of credit has expired, under the terms of the Company's
secured indebtedness, the Company has the right, subject to certain
restrictions contained in the agreements evidencing the secured
indebtedness, to obtain an additional seasonal line of credit in
the future, secured by a first lien on the Company's assets.
4. The Company granted a second lien on substantially all of the
Company's assets which is shared on a pro rata basis by the $90
million revolving credit lenders, the $65.5 million private
placement note lenders and the $5.5 million limited obligation
lender.
5. Henry S Dorfman, the Chairman of the Board of Directors of the
Company and a significant shareholder of the Company, purchased
279,883 shares of newly-issued Common Stock from the Company at a
price per share determined by the average closing price of the
Company's Common Stock for the 20 trading days preceding the stock
purchase.
6. The Company agreed to obtain by April 30, 1997 a minimum of $15
million in subordinated debt financing. The proceeds from this
offering will be used to reduce the outstanding balance of the
private placement notes, revolving credit notes and limited
obligation revenue bonds. See "Use of Proceeds", above.
7. The agreements contain financial covenants with respect to
consolidated net worth (as defined therein) and interest coverage.
The Company is also required to achieve a prescribed level of
consolidated earnings available for interest expense. 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 following is a summary of the principal financial covenants contained
in the Company's secured indebtedness borrowing agreements:
(a) The Company is presently required to maintain a minimum level of
consolidated adjusted net worth of at least $72 million through December
14, 1996, increasing to $74 million for the period from December 15, 1996
through March 8, 1997, to $76 million for the period from March 9, 1997
through April 30, 1997, and to $91 million plus 50% of the consolidated
net earnings of the Company for each fiscal year commencing with fiscal
1997 for the period from May 1, 1997 through the date on which the loans
shall have been paid in full. For purposes of this covenant calculation,
consolidated adjusted net worth is defined as the sum of consolidated
shareholder's equity less intangible assets incurred after the Company's
Wilson acquisition, plus subordinated debt, including the Debentures. At
December 13, 1996, the Company's consolidated adjusted net worth was
$80.1 million.
(b) The Company is required to maintain a minimum interest coverage
ratio of 1.65 to 1 for the period from December 13, 1996 through December
12, 1997, of 1.85 to 1 for the period from December 13, 1997 through May
1, 1998, and of 2.0 to 1 for the period from May 2, 1998 through the date
on which the loans shall have been paid in full. This ratio is measured
at the end of each four week period during each fiscal year. At December
13, 1996, the Company's interest coverage ratio was 2.45 to 1.
(c) At any time, the Company must limit its rental payments during
the next succeeding 365-day period, for any property other than capital
leases, to an aggregate of $9.0 million. At December 13, 1996, the
Company's applicable rental payments for the next succeeding 365-day
period were approximately $7.64 million.
(d) The Company's aggregate amount of consolidated earnings available
for interest expense for fiscal 1997 may not be less than $24.6 million.
For purposes of this covenant calculation, consolidated earnings
available for interest coverage equals EBITDA (as defined in Footnote 5
to the Selected Consolidated Financial Data included elsewhere in this
Prospectus).
(e) The Company is required to achieve minimum levels of Fresh Meats
division earnings available for interest expense for specific
year-to-date periods during its 1997 fiscal year. The required aggregate
amount of Fresh Meats division earnings available for interest expense
for the Company's
20
<PAGE> 22
second and third quarter year-to-date periods and for fiscal year 1997
may not be less than $2.0 million, ($1.0) million and ($3.0) million,
respectively. For purposes of this covenant calculation, Fresh Meats
division earnings available for interest expense equals EBITDA (as
defined in Footnote 5 to the Selected Consolidated Financial Data
included elsewhere in this Prospectus) for the Fresh Meats division. At
December 13, 1996, the Company was not in compliance with its Fresh Meats
division earnings available for interest coverage covenant for its second
quarter ended December 13, 1996, as its Fresh Meats EBITDA for the period
was $818,235. The Company has obtained from its various secured lenders
unconditional waivers of such non-compliance.
(f) The Company's total capital lease obligations may not exceed $7.0
million at any time. At December 13, 1996, the Company's total capital
lease obligations were $5.0 million.
(g) The Company's net capital expenditures may not exceed $8.2
million during its fiscal 1997 year or during its fiscal 1998 year. In
subsequent fiscal years, net capital expenditures may not exceed $8.2
million plus 25% of consolidated net earnings for each such fiscal year.
The Company expects to be in compliance with this covenant for its fiscal
1997 year.
The Company's two other revenue bond agreements contain restrictive
covenants that include the maintenance of a minimum level of consolidated net
worth (as defined therein) and of certain financial ratios. At December 13,
1996, the Company was not in compliance with certain covenants contained in one
of its industrial revenue bond agreements and the Company obtained an
unconditional waiver of those violations from its lender through July 1, 1997.
The Company has classified this obligation as a current liability, as a result
of the waiver being less than one year in duration from the balance sheet date.
At December 13, 1996, the Company had approximately $7.9 million in cash.
Cash provided by operations during the twenty-eight weeks ended December 13,
1996 was approximately $10.0 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 acquired from
financing activities was used principally to pay down the revolving credit
agreement and other long-term debt of $7.3 million and to fund net capital
expenditures of $2.7 million. The Company's net working capital increased to
$74.7 million at December 13, 1996 from $59.0 million at May 31, 1996. The
Company expects to incur net capital expenditures during fiscal 1997 of
approximately $8.2 million. At December 13, 1996, the Company had total lines of
credit available under its amended revolving credit agreement and seasonal line
of credit agreement from four financial institutions aggregating $110.0 million,
of which $20.1 was unused. 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.
During calendar 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and SFAS No. 123 "Accounting for Stock-Based
Compensation". Both SFAS 121 and 123 are effective for fiscal years commencing
after December 15, 1995. The Company has adopted both SFAS No. 121 and 123 for
the fiscal year beginning on June 1, 1996.
21
<PAGE> 23
BUSINESS
GENERAL
Thorn Apple Valley, Inc. (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's Processed Meats division engages in the
manufacture 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. In recent years, the
Company has focused on identifying emerging trends in consumer preferences and
on developing Processed Meat 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 product segments. For example, the Company has
developed innovative packaging concepts and products which 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
which are more convenient to use and are healthier than existing product
alternatives.
THE COMPANY'S RECENT DEVELOPMENTS
In recent years, the Company's strategy has been to modernize its
production facilities, to relocate certain production and distribution
facilities to geographically strategic locations and to increase its sales of
higher-margin premium brand Processed Meat products. To this end, the Company
has accomplished the following:
- To respond to consumer demand for certain products and to enhance
the Company's manufacturing efficiencies, in November 1995 the
Company began operating its newly constructed, 171,000 square foot,
state-of-the-art processing facility in Ponca City, Oklahoma, which
principally manufactures 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.
- To increase manufacturing efficiencies and to meet customers'
changing packaging and product variety requirements in the Fresh
Meats division, the Company completed a $40 million renovation of
its Fresh Meats facility located in Detroit, Michigan (the
"Frederick Facility").
- To position the Company as a national distributor of Processed
Meats, to strengthen the Company's manufacturing and distribution
capabilities in the southern and western United States and to
augment the Company's premium brand Processed Meats business, in May
1995 the Company acquired substantially all of the assets (including
the brand names "Wilson Certified(R)" and "Corn King(R)") of the
Wilson Retail Division of Foodbrands America, Inc., a major
manufacturer of premium branded Processed Meats products (the
"Wilson Acquisition"). See "Business -- Wilson Acquisition".
- To streamline various corporate operations, including purchasing,
sales and marketing, the Company relocated and consolidated its
corporate headquarters and opened a new, 60,000 square foot
distribution center in Edwardsville, Kansas. The Company also closed
three older, less efficient processing facilities, two of which were
acquired in the Wilson Acquisition, and one distribution center.
In connection with the Company's expansion and renovation projects
described above, the Company experienced both planned and unplanned start-up
costs and operating inefficiencies at the Frederick Facility and at the Ponca
City plant in fiscal years 1995 and 1996. In addition, during this period the
Company, and the entire fresh pork industry, experienced a shortage in the
supply of live hogs, a significant increase in the price of live hogs and a
reduction in profit margins associated with the slaughtering of hogs. As a
result of the
22
<PAGE> 24
costs associated with the integration of the Wilson Acquisition, operating
inefficiencies and start-up costs experienced at the Ponca City facility and
Frederick Facility, reduced profit margins experienced by the Company's Fresh
Meats division and the effects of the LIFO method of accounting for inventory,
for the fiscal year ended May 31, 1996 the Company experienced a net loss of
$21.7 million, compared with net income of $5.3 million during the prior fiscal
year.
While profit margins in the hog slaughtering industry remain low, in fiscal
1997 the Company has experienced improved efficiency and yields in its Fresh
Meats operation, and the Company's Processed Meats Division has benefited from
increases in both sales and profitability resulting from the Wilson Acquisition
and the other changes instituted by the Company. For the 12 weeks ended December
13, 1996 the Company had net income of $2,017,000, or $.33 per share, compared
to a net loss of $1,757,000, or $.30 per share, for the similar period in the
prior fiscal year. For the 28 weeks ended December 13, 1996, the Company had net
income of $305,000, or $.05 per share, compared to a net loss of $6,922,000, or
$1.20 per share, for the similar period in the prior fiscal year. The improved
performance resulted primarily from better margins in the Fresh Meats division
achieved through direct cost reductions from the facility enhancements and from
stronger sales and margins in the Processed Meats division.
BUSINESS STRATEGY
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 and Korea. The key elements of
this strategy are as follows:
Increase Sales of Processed Meats Products. The Company continues to
emphasize the marketing of premium brand Processed Meats products because
it believes that sales of these products generally provide higher and more
consistent profit margins than controlled and private brand label Processed
Meats products or Fresh Meats products. In connection with this strategy,
the Company has terminated arrangements with several customers pursuant to
which the Company was producing private label products under such
customers' brand names.
Improve Fresh Meats and Processed Meats Production Efficiencies. The
Company intends to continue improving the production and operation
efficiencies at the Frederick Facility, which were adversely impacted by
the $40.0 million expansion and renovation of the Frederick Facility
undertaken by the Company in fiscal years 1994 and 1995, and at its
Processed Meats facilities. Although the operating inefficiencies resulting
from the major renovation project at the Frederick Facility negatively
impacted profit margins on sales of Fresh Meats in fiscal years 1995 and
1996, the Company believes that it has remedied most of the significant
operating inefficiencies at the Frederick Facility and intends to continue
improving operating efficiencies, thereby lowering manufacturing costs and
improving profit margins.
Develop and Market New Processed Meats Products. The Company plans to
continue developing new Processed Meats products to respond to emerging
trends in consumer preferences, emphasizing products that offer
opportunities for higher profit margins than those associated with more
mature and more competitive markets. In particular, the Company continues
to expand the use of poultry in its products and to take other steps to
provide leaner, lower-fat products to health-conscious consumers and to
continue developing innovative packaging concepts. The Company believes
that opportunities exist to extend its current product lines into related
Processed Meats products, thereby leveraging its current premium brand
names.
Increase Sales Volume Through Additional Marketing Strategies. The
Company is developing various sales and marketing strategies to increase
sales of both Processed Meats and Fresh Meats products. These strategies
include increasing sales of the Company's products to international markets
23
<PAGE> 25
such as Russia and Korea, and cross-selling "Thorn Apple Valley(R)"
products to customers of "Wilson Certified(R)" or "Corn King(R)" products
and vice versa.
The Company believes that, under current market conditions, the
restructuring accomplished over the last two years will allow it to continue to
improve its operating performance. The Company is experiencing improved sales
and profitability in its Processed Meats division and increased efficiency and
yield at its Fresh Meats facility. The Company has significant excess capacity
which would allow the Company to increase sales of its products without
significant additional capital expenditures. 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 normal
levels of profitability. The Company also believes that it is well positioned to
benefit from increased sales of products and from improved market conditions in
the Fresh Meats industry, although the Company is unable to predict if and when
market conditions will improve.
WILSON 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' Wilson Retail Division ("Wilson") assets used
by Wilson in its business of producing and marketing retail meat products (the
"Wilson Acquisition"). The acquired assets included three manufacturing
facilities, machinery and equipment, current assets and certain trademarks and
tradenames, including the brand names "Wilson Certified(R)" and "Corn King(R)".
Two of the facilities acquired were older, less efficient processing facilities
which the Company closed in fiscal 1996. The aggregate purchase price for the
assets acquired and the assumption of certain liabilities was approximately
$64.6 million. During the five year period following the date of the
acquisition, Foodbrands has the right to receive from the Company, in accordance
with an Earnout Agreement, 12.5% of any increase in the aggregate market price
of the Company's outstanding shares of common stock above $156.6 million, up to
a total earnout payment of $10.0 million. During fiscal 1996, no amount was paid
to Foodbrands under the Earnout Agreement.
PRODUCTS, OPERATIONS AND MARKETING
The Company is engaged in a single segment business with two principal
product categories: processed meat and poultry products ("Processed Meats") and
fresh pork ("Fresh Meats"). The Company believes that its Processed Meats
division realizes a strategic advantage by being able to procure a substantial
portion of its raw materials from the Fresh Meats division. The following table
shows for the fiscal years indicated the net
24
<PAGE> 26
sales and approximate pounds of products shipped for the Company's Processed
Meats division and Fresh Meats division.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES (IN DOLLARS)
Processed Meats................................... $368.4 $386.7 $416.3 $415.4 $623.0
Fresh Meats....................................... 365.7 336.6 349.1 321.8 355.0
Other(1).......................................... 5.6 6.6 6.7 7.3 5.1
------ ------ ------ ------ ------
Total........................................ $739.7 $729.9 $772.1 $744.5 $983.1
NET SALES (%)
Processed Meats................................... 50% 53% 54% 56% 63%
Fresh Meats....................................... 49 46 45 43 36
Other(1).......................................... 1 1 1 1 1
------ ------ ------ ------ ------
Total........................................ 100% 100% 100% 100% 100%
PRODUCTS SHIPPED (IN LBS.)
Processed Meats................................... 320.3 337.8 351.7 378.2 507.7
Fresh Meats....................................... 458.8 415.6 419.6 422.2 394.6
------ ------ ------ ------ ------
Total........................................ 779.1 753.4 771.3 800.4 902.3
PRODUCTS SHIPPED (%)
Processed Meats................................... 41% 45% 46% 47% 56%
Fresh Meats....................................... 59 55 54 53 44
------ ------ ------ ------ ------
Total........................................ 100% 100% 100% 100% 100%
</TABLE>
- -------------------------
(1) Other is comprised principally of transportation revenue from transportation
services provided to third parties.
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. The Company's emphasis in its sales and
marketing programs is to expand sales of higher margin products and develop new
packaging concepts and product innovations that will appeal to emerging trends
in consumer preferences.
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 sausage,
hot dogs and bacon products are generally higher during the summer months.
Processed Meats Products
The Processed Meats 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. 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 or large supermarket chains.
The Thorn Apple Valley-Grand Rapids division of the Company ("Grand
Rapids"), which is located in Grand Rapids, Michigan, is engaged in the
production and sale of approximately 50 varieties of packaged meat products such
as hot dogs, lunch meats (such as bologna, salami and pickle loaf), corned beef
and
25
<PAGE> 27
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.
The Thorn Apple Valley-Dixie division of the Company ("Dixie"), which is
located in Forrest City, Arkansas, and is primarily engaged in the production of
hot dogs. 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, and 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 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.
The Thorn Apple Valley-Council Bluffs division of the Company ("Council
Bluffs") is located in Council Bluffs, Iowa, and is primarily engaged in the
production of a variety of boneless ham products. The Council Bluffs facility is
operated and managed by a major meat packing company pursuant to a production
agreement. See "Raw Materials" below for further discussion of such production
agreement.
During fiscal 1996, the Company closed its Thorn Apply Valley-Concordia
division ("Concordia") and its Thorn Apple Valley-Shreveport division
("Shreveport"). The Concordia division had produced boneless hams and related
smoked meat products and the Shreveport division had produced specialty products
such as natural casing hot dogs. The production of these products was moved
primarily to the Company's Council Bluffs and Smoked Meats divisions.
Fresh Meats Products
The Thorn Apple Valley-Frederick division of the Company ("Frederick"),
which is located in Detroit, Michigan, is engaged in the slaughtering and
cutting of hogs and the sale of primal cuts of fresh pork products, including
hams, shoulders, loins, ribs, butts and pork bellies, and of related
by-products, such as edible renderings and meat trimmings. Approximately
3,339,000, 3,146,000 and 2,891,000 hogs were slaughtered by Frederick in fiscal
years 1996, 1995 and 1994, respectively. The Company's Utah division, which was
closed during fiscal 1995, slaughtered approximately 274,000 and 339,000 hogs
during fiscal years 1995 and 1994, respectively.
Sales of products by the Frederick division are ordinarily initiated and
completed by telephone between buyers and Frederick sales personnel. Sales are
also made through brokers located throughout the United States and abroad.
Customers for primal cuts and trimmings are generally wholesalers, supermarket
chains, and outside processors. Most edible offal items are cleaned, boxed and
frozen for storage until delivery to the customer. Fat trimmings and some
inedible items are sold to renderers. The Company also further processes some of
its primal cuts into higher margin boneless products.
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
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<PAGE> 28
operations. The profit margins experienced by the Company and the fresh pork
industry on sales of Fresh Meats and by-products were lower during fiscal 1996
than the margins experienced by the Company and the industry in recent years.
The lower margins resulted from an industry wide hog shortage, and an increase
in the price of hogs, as well as from increased costs to produce Fresh Meats
products caused by operating inefficiencies at the Company's Frederick Facility
(which resulted from an extensive plant renovation project). The Company
believes that it has remedied most of the significant operating inefficiencies
at the Frederick Facility.
TRADEMARKS AND LICENSES
The Company owns or has the right to use over 80 various trademarks,
including those described above and certain trademarks purchased from
Foodbrands. The trademarks are valuable to the Company because of the
significant market advantage that name recognition provides in the 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 1996 approximately 16% of the Company's products were
marketed in Michigan. This percentage was approximately 19% and 20% for fiscal
1995 and 1994, respectively. The balance of the products were marketed in each
of these years primarily in 46 other states, Washington, D.C., Canada and to
Pacific Rim countries. Sales to customers in foreign countries during fiscal
1996 totaled approximately $14,900,000. This total was approximately $9,300,000
for fiscal 1995 and approximately $11,200,000 for fiscal 1994.
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 manufacturers of meat and poultry products. For fiscal 1996,
approximately 33% of the Company's sales were made to its 10 largest customers,
none of whom accounted for as much as 10% of the Company's sales. The Company
does not have any significant long-term sales commitments except for the sale of
its inedible rendering materials.
In April 1996, the Company opened a new, 60,000 square foot distribution
center in Edwardsville, Kansas and closed a small distribution center in
Clearfield, Utah. The Company believes that this new distribution center,
combined with the Company's distribution center in Detroit, Michigan, will
enable the Company to provide a higher level of service to the Company's
customers.
The Company owns and operates a fleet of refrigerated tractor-trailers and
additional trailers which are used for transporting a portion of its products to
customers and to the Company's manufacturing facilities. The Company also
engages the services of contract carriers, including Coast Refrigerated Trucking
Co., Inc., National Food Express, Inc. and Millers Transport Inc., all
wholly-owned subsidiaries of the Company. Products are shipped to supermarket
chains, wholesalers and other meat processors. In addition to its own delivery
equipment, the Company utilizes non-affiliated carriers or has customers make
their own arrangements for delivery.
RAW MATERIALS
The Company's primary raw material is live hogs. The purchase of live hogs
accounted for approximately 72% of the total purchases of raw materials made by
the Company during fiscal 1996. 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 65% of the total hogs purchased by the Company in fiscal 1996.
Under the terms of the agreement, which expires in November 2004, 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.
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<PAGE> 29
During fiscal 1996, Grand Rapids obtained 24% of all of the pork required
in its operations from the Company's Fresh Meats division, which constituted
approximately 14% of the cost of the total meat requirements of Grand Rapids.
Approximately 68% of the pork processed during fiscal 1996 at Smoked Meats was
obtained from the Company's Fresh Meats division, which constituted
approximately 49% of its total meat requirements. Approximately 38% of the pork
requirements of Ponca City was obtained from the Company's Fresh Meats division,
which comprised approximately 22% of its total meat requirements. The Company's
Dixie plant received approximately 13% of its pork requirements from the
Company's Fresh Meats division, which represented approximately 3% of its total
meat requirements. Approximately 53% 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 packaging materials from a number of
readily-available sources.
In connection with the Wilson Acquisition, the Company assumed a production
agreement (the "Production Agreement") with a major meat packing company (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 is obligated to
produce at such facility, on an exclusive basis, all boneless ham products which
the Company may require. In return, the Company has agreed to pay and/or
reimburse Producer for all operating and fixed costs incurred at the facility
and to pay Producer a fee of approximately $1,375,000 per year during the term
of the agreement and any extensions thereof. The Production Agreement has an
initial term (the "Initial Term") expiring on June 6, 2001 and may be renewed by
the Company for up to five successive three year terms (the "Option Periods").
If the Company fails to renew the Production Agreement for each of the five
Option Periods, or if the Company terminates or breaches the Production
Agreement, the Company will be obligated to pay the $1,375,000 annual fee for
the remainder of the Initial Term, if any, and an annual payment of
approximately $408,000 for each remaining year of each of the five Option
Periods. In such event, the Producer must use its best efforts to utilize the
vacated facility to mitigate costs to the Company.
In addition to the Production Agreement, the Company has also assumed a
supply agreement with the Producer. The Company has agreed to purchase and the
Producer has agreed to supply 400,000 pounds of boneless ham muscles on a weekly
basis at a pricing formula equal to or more favorable than prices obtainable
from other competitive suppliers. The term of such supply agreement runs
concurrent with the term of the Production Agreement described above.
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 had, at March 1, 1997, approximately 4,000 employees,
approximately 940 of whom are engaged in slaughtering and cutting hogs,
approximately 2,180 of whom are engaged in the production of the processed meat
and poultry products, and approximately 880 of whom are employed in
administration, sales or transportation.
The majority of the Company's production workers are employed under four
union contracts. These contracts are generally for a period of two to four years
and have various expiration dates through the third quarter of fiscal 2000. The
Company has historically maintained good labor relations. The unexpired portions
of the existing agreements contain no significant labor cost increases.
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<PAGE> 30
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 Meats and Processed Meats 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.
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
FLOOR SPACE
LOCATION OPERATION (SQ. FT.)
-------- --------- -----------
<S> <C> <C>
Detroit, Michigan Hog slaughtering and boning operations 218,000
Ponca City, Oklahoma Manufacture of boneless and and bone-in hams, premium 171,000
double-glazed spiral sliced hams and premium sliced
lunch meats
Detroit, Michigan Manufacture of premium sliced lunch meats, spiral 150,000
sliced hams, cooked hams, deli hams and specialty
boneless hams
Holly Ridge, North Carolina Manufacture of bacon products 150,000
Grand Rapids, Michigan Manufacture of hot dogs, lunch meats, corned beef and 135,000
smoked sausage
Forest City, Arkansas Manufacture of hot dogs 70,000
Edwardsville, Kansas(1) Distribution center 60,000
Council Bluffs, Iowa(2) Manufacture of boneless ham 53,000
Detroit, Michigan(1)(3) Distribution center 50,000
Walker, Michigan Poultry boning and manufacture of pork sausage and 45,000
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, but contains production equipment
owned by the Company. See "Business -- Raw Materials".
(3) This facility is leased from a related party. See Note 4 to Notes to
Consolidated Financial Statements.
(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 are 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 $6.5 million as of May 31, 1996. As of the date of this
Prospectus, 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".
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<PAGE> 31
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.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company as of the date of this
Prospectus are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Henry S Dorfman...................... 75 Chairman of the Board
Joel Dorfman......................... 45 President and Chief Executive Officer
Louis Glazier........................ 47 Executive Vice President Finance and Administration
Keith Jahnke......................... 43 Executive Vice President Processed Meats
Edward E. Boan....................... 46 Executive Vice President Fresh Meats and Human Resources
Moniek Milberger..................... 66 Director
John C. Canepa....................... 66 Director
Burton D. Farbman.................... 54 Director
Seymour Roberts...................... 62 Director
</TABLE>
Henry S Dorfman has served as Chairman of the Board of Directors since
1959. Mr. Dorfman also served as Chief Executive Officer of the Company from
1959 to July, 1995. Mr. Dorfman was a founder of the Company.
Joel Dorfman has been a director since 1978. Mr. Joel Dorfman has served as
President of the Company since March, 1985 and Chief Executive Officer of the
Company since July, 1995. Mr. Dorfman joined the Company in September, 1973.
Louis Glazier has been a director of the Company since 1988. Mr. Glazier
has been Executive Vice President Finance and Administration of the Company
since July, 1988. Mr. Glazier joined the Company in March, 1975.
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. Mr. Jahnke joined the Company in July, 1973.
Edward E. Boan has been Executive Vice President Fresh Meats and Human
Resources since 1991. Mr. Boan also served as General Manager and Vice President
Fresh Meats from 1987 to 1991, and Vice President of Human Resources from 1985
to 1991.
Moniek Milberger has been a director of the Company since the Company's
inception. Mr. Milberger has been a Certified Public Accountant in private
practice since 1960 and serves as a consultant to the Company.
John C. Canepa has been a director of the Company since 1983. Mr. Canepa
has been a consulting principal of Crowe Chizek, a certified public accounting
and consulting firm, since November, 1995. From 1970 to November, 1995, Mr.
Canepa served as President and Chief Executive Officer of Old Kent Financial
Corporation and Old Kent Bank and Trust Company, Grand Rapids, Michigan.
Burton D. Farbman has been a director of the Company since 1988. Mr.
Farbman has been President of The Farbman Group, a real estate development and
management company, since 1987, and prior to that was President of the Farbman
Group in 1977.
Seymour Roberts has been director of the Company since 1992. Mr. Roberts
has been a Senior Vice President and Senior Partner of N.W. Ayer & Partners, an
advertising agency, since February, 1992. From 1973 to 1991, Mr. Roberts served
as Executive Vice President and General Manager of W.B. Doner & Company, an
advertising agency.
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<PAGE> 32
DESCRIPTION OF DEBENTURES
The Debentures will be issued under an Indenture to be dated as of March
, 1997, between the Company and State Street Bank and Trust Company, as
Trustee (the "Trustee"). The Debentures will represent unsecured general
obligations of the Company, subordinated in right of payment to certain other
obligations of the Company as described under "Subordination of Debentures" and
convertible into Common Stock as described under "Conversion of Debentures". The
Debentures will be limited to $17,250,000 aggregate principal amount, will be
issued in fully registered form only in denominations of $1,000 or any integral
multiple thereof and will mature on April 1, 2007.
The following statements are subject to the detailed provisions of the
Indenture and are qualified in their entirety by reference to the Indenture, a
copy of which is filed as an exhibit to the Registration Statement and is also
available for inspection at the office of the Trustee. Whenever particular
provisions of the Indenture are referred to, such provisions are incorporated by
reference as a part of the statements made in this Prospectus, and the
statements are qualified in their entirety by such reference.
The Debentures will bear interest from their date of original issuance, at
the annual rate set forth on the cover page of this Prospectus, payable
semi-annually on April 1 and October 1, commencing on October 1, 1997, to
holders of record at the close of business on the preceding March 15 and
September 15, respectively.
Principal and premium, if any, will be paid and the Debentures may be
presented for conversion, registration of transfer, and exchange, without
service charge, at the corporate trust office of the Trustee in Detroit,
Michigan. Interest will be paid by checks mailed to holders of record unless the
Trustee determines such method of payment to be inappropriate in the
circumstances.
The statements under this caption relating to the Debentures and the
Indenture are summaries and do not purport to be complete. Such summaries make
use of certain terms defined in the Indenture and are qualified in their
entirety by express reference to the Indenture, a copy of which is filed as an
exhibit to the Registration Statement. As used under this caption, the term
"Company" refers only to Thorn Apple Valley, Inc., a Michigan corporation, and
not to any of its subsidiaries.
CONVERSION OF DEBENTURES
The holders of Debentures will be entitled at any time prior to the close
of business on the business day preceding April 1, 2007, subject to prior
redemption, to convert the Debentures or portions thereof (which are $1,000 or
integral multiples thereof) into shares of Common Stock of the Company, at the
conversion price set forth on the cover page of this Prospectus, subject to
adjustment as described below. Except as described below, no adjustment will be
made on conversion of any Debenture for interest accrued thereon or for
dividends on any shares of Common Stock issued. If any Debenture not called for
redemption is converted between a record date for the payment of interest and
the related interest payment date, the Debentures must be accompanied by funds
equal to the interest payable on such interest payment date on the principal
amount so converted. The Company is not permitted to issue fractional shares of
Common Stock upon conversion of Debentures and, in lieu thereof, will pay a cash
adjustment based upon the average closing sales price of the Common Stock on The
Nasdaq National Market (or the principal securities exchange where the Common
Stock is then traded) on the last five trading days prior to the date of
conversion. In the case of Debentures called for redemption, conversion rights
will expire at the close of business on the business day preceding the
redemption date.
The conversion price is subject to adjustment, under formulas set forth in
the Indenture, upon the occurrence of certain events, including the issuance of
shares of Common Stock of the Company as a dividend or distribution on the
Common Stock, subdivisions and combinations of the Common Stock, the issuance to
all holders of Common Stock of certain rights or warrants entitling them for a
period not exceeding 45 days to subscribe for Common Stock at less than the then
current market price (as defined); and the distribution to all holders of Common
Stock of any securities (other than Common Stock) or evidences of indebtedness
of the Company or of assets (excluding cash dividends or distributions from
retained earnings) or rights or warrants to subscribe for or purchase any of its
securities (excluding those referred to above). No adjustment in the conversion
price will be required unless such adjustment would require a change of at least
$0.25 in the
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<PAGE> 33
conversion price then in effect; provided, however, that any adjustment that
would otherwise be required to be made shall be carried forward and taken into
account in any subsequent adjustment. The Company reserves the right to make
such reductions in the conversion price, in addition to those required by the
foregoing provisions, as the Company in its discretion shall determine to be
advisable in order that certain share-related distributions made by the Company
to its shareholders after the date of this Prospectus will not be taxable.
Except as stated above, the conversion price will not be adjusted for the
issuance of shares of Common Stock or any securities convertible into or
exchangeable for Common Stock, or carrying the right to purchase any of the
foregoing, in exchange for cash, property, or services.
In the case of a reclassification, consolidation, merger or statutory share
exchange involving the Company as a result of which holders of Common Stock will
be entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for shares of Common Stock or in the case
of a sale or conveyance to another corporation of all or substantially all of
the property and assets of the Company, the holders of the Debentures then
outstanding will be entitled thereafter to convert such Debentures into the kind
and amount of shares of stock, other securities or other property or assets
which they would have owned or been entitled to receive upon such
reclassification, consolidation, merger, statutory share exchange, sale or
conveyance had such Debentures been converted to shares of Common Stock
immediately prior to such reclassification, consolidation, merger, statutory
share exchange, sale or conveyance.
In addition to the right to receive shares of Common Stock upon conversion,
if the Company has distributed, or established a record date for distribution
of, shares of the stock or other equity interest of any subsidiary to all of the
holders of the Common Stock on a pro rata basis at any time between the date of
the Indenture and the date of such conversion, then the Company and such
subsidiary will execute a supplemental indenture providing that each Debenture
shall be convertible into, and upon conversion the holder of each Debenture
shall be entitled to receive, in addition to (and not in lieu of) such shares of
Common Stock, the kind and amount of shares of stock or other equity interest
receivable upon such distribution by a holder of the number of shares of Common
Stock issuable upon conversion of such Debenture immediately prior to such
distribution.
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment of the conversion price, the holders of Debentures may,
in certain circumstances, be deemed to have received a distribution subject to
United States income tax as a dividend; the absence of such an adjustment in
certain other circumstances may also result in a taxable dividend to the holders
of Common Stock.
OPTIONAL REDEMPTION
The Debentures will be redeemable on at least 30 and not more than 60 days'
notice, at the option of the Company, as a whole or in part, at any time after
issuance, at the following prices (expressed as percentages of the principal
amount), together with accrued interest to the date fixed for redemption if
redeemed during the periods indicated below:
<TABLE>
<CAPTION>
REDEMPTION REDEMPTION
PERIOD PRICE
---------- ----------
<S> <C>
April 1, 1997 to March 31, 1998..................... 106%
April 1, 1998 to March 31, 1999..................... 105%
April 1, 1999 to March 31, 2000..................... 104%
April 1, 2000 to March 31, 2001..................... 103%
April 1, 2001 to March 31, 2002..................... 102%
April 1, 2002 to March 31, 2003..................... 101%
April 1, 2003 and thereafter........................ 100%
</TABLE>
However, the Debentures may not be redeemed prior to April 1, 2000, except
(i) in connection with a "Sale Event" (as defined below) or (ii) unless the last
reported sales price (determined as provided in the Indenture) of the Common
Stock equals or exceeds 140% of the then effective conversion price (as
described above) for any 20 trading days within a period of 30 consecutive
trading days prior to the date notice of
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<PAGE> 34
redemption is given to the holders of Debentures. A "Sale Event" means (a) the
acquisition of 50% or more of the voting power of the Company's voting stock by
a person or group, other than any current holder of 5% or more of the Common
Stock (or a group including such a holder) or (b) a consolidation or merger
involving the Company or a sale of 66 2/3% or more of the assets of the Company
(generally, all consolidations, mergers and asset sales other than "migratory"
mergers, mergers in which the outstanding capital stock is not affected, certain
intercompany transactions, and transactions after which no person or group,
other than a current holder of 5% or more of the Common Stock, or a group
including such a holder, has more than 50% of the ordinary voting power of the
surviving corporation).
SUBORDINATION OF DEBENTURES
The payment of the principal of, premium, if any, and interest on the
Debentures will be subordinated in right of payment to the prior payment in full
of all Senior Indebtedness of the Company. No payment on account of principal,
premium, if any, or interest on the Debentures and no purchase, redemption or
other acquisition of the Debentures may be made unless (i) at the time proposed
for any such payment, redemption, purchase or other acquisition, full payment of
amounts then due for principal, premium, if any, and interest and of all other
amounts then due on all Senior Indebtedness shall have been made or duly
provided for pursuant to the terms of the instrument governing such Senior
Indebtedness, and (ii) at the time for, or immediately after giving effect to,
any such payment, redemption, purchase or other acquisition, there shall not
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness has been issued, any default which shall not have been cured
or waived and which shall have resulted in such Senior Indebtedness being
declared due and payable. In addition, the Indenture will also provide that if
the holders of any Senior Indebtedness notify the Company that an event of
default has occurred giving the holders of such Senior Indebtedness the right to
accelerate the maturity thereof, no payment of principal or interest on the
Debentures will be made, except accelerated within 270 days after the holders of
such Senior Indebtedness have given notice of such event of default to the
Company, such payments on the Debentures (otherwise than by reason of
acceleration thereof) may be made so long as the maturity of such Senior
Indebtedness is not accelerated. Upon any distribution of its assets in
connection with any dissolution, winding-up, liquidation or reorganization of
the Company, all Seniors Indebtedness must be paid in full before the Holders of
the Debentures are entitled to any payments whatsoever. By reason of such
subordination, in the event of insolvency, general creditors of the Company may
recover less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than Holders of Debentures or other subordinated indebtedness.
"Senior Indebtedness" is defined as the principal of, premium, if any,
interest on and other amounts due on any indebtedness (other than the
Debentures), whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed by the Company for money borrowed from
others (including, for this purpose, all obligations incurred under capitalized
leases or purchase money mortgages) or in connection with the acquisition by it
or a Subsidiary of any other business or entity and, in each case, all renewals,
extensions and refundings thereof, unless the terms of the instrument creating
or evidencing such indebtedness expressly provide that such indebtedness is not
superior in right of payment to the payment of the principal of, premium, if
any, and interest on the Debentures. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness shall not include (a) indebtedness on amounts
owed or compensation to employees, for goods or materials purchased in the
ordinary course of business, or for services or (b) indebtedness of the Company
to any of its Subsidiaries for money borrowed or advances from such
Subsidiaries.
As of March 1, 1997, the Company had approximately $154.4 million of Senior
Indebtedness (approximately $ million after giving effect to the application of
the proceeds of this Offering). The Debentures and the Indenture do not prohibit
or limit the ability of the Company to incur additional Senior Indebtedness.
Following the Offering, the Company intends to incur additional indebtedness
under its revolving line of credit and to enter into capital leases, and may
incur additional indebtedness in connection
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<PAGE> 35
with the acquisition of other businesses, including through joint ventures,
which indebtedness and capital leases will constitute Senior Indebtedness.
The Indenture permits the Trustee to become a creditor of the Company and
does not preclude the Trustee from enforcing its rights as a creditor, including
rights as a holder of Senior Indebtedness.
REPURCHASE EVENT
The Company has agreed in the Indenture that, upon the occurrence of a
Repurchase Event (as defined below), the Company will offer to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of a holder's
Debentures (the "Repurchase Offer") at a price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Repurchase Payment"). Within 30 days after the occurrence of a
Repurchase Event, the Company shall mail a notice to each holder stating among
other things: (i) the Repurchase Payment and the purchase date, which shall not
be earlier than 45 days nor later than 60 days from the date such notice is
mailed or such later date as may be necessary for the Company to comply with the
requirements of the Exchange Act (the "Repurchase Date"); (ii) that any
Debenture not tendered will continue to accrue interest; (iii) that, unless the
Company defaults in the payment of the Repurchase Payment, all Debentures
accepted for payment pursuant to the Repurchase Offer shall cease to accrue
interest after the Repurchase Date; and (iv) the procedures that a holder must
follow to accept a Repurchase Offer or to withdraw such acceptance. The Company
will comply with any applicable requirements of the Exchange Act and other
securities laws, and the regulations thereunder, governing the repurchase of the
Debentures in connection with a Repurchase Event and may modify a Repurchase
Offer to effect such compliance.
A Repurchase Event is generally defined to include (i) the acquisition of
50% or more of the voting power of the Company's voting stock by a person or
group, other than any current holder of 5% or more of the Common Stock (or a
group including such a holder); (ii) a change, over a two-year period, in the
composition of the Company's Board of Directors such that, with limited
exceptions, the Board members at the beginning of the period, and Board members
who were elected, or nominated for election, by the vote of at least two-thirds
of the directors then in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved, no longer constitute a majority of the Board; (iii) the signing of a
definitive agreement providing for a consolidation or merger involving the
Company or the sale of 66 2/3% or more of the assets of the Company (generally,
all consolidations, mergers and asset sales other than "migratory" mergers,
mergers in which the outstanding capital stock is not affected, certain
intercompany transactions, and transactions after which no person or group,
other than a current holder of 5% or more of the Common Stock, or group
including such a holder, has more than 50% of the ordinary voting power of the
surviving corporation); and (iv) a distribution of cash or other properties to
the Company's shareholders if the sum of (a) the ratio of the fair market value
of the amount paid in such distribution to the then fair market value of the
Company's outstanding capital stock, plus (b) the similar ratios for all other
distributions during the prior 12-month period, exceeds 30%. For purposes of the
Repurchase Event tests, the Company's "voting stock" means the Common Stock plus
any other class or classes of stock which may be issued and have general voting
power in the election of the Company's Board of Directors. The Company's
"capital stock" means any stock which does not have dividend or liquidation
priority over other stock of the Company, irrespective of relative voting
powers.
On or before 10:00 a.m., Eastern Time, on the Repurchase Date, the Company
will deposit with the Trustee an amount equal to the Repurchase Payment in
respect of all Debentures or portions thereof that have been properly tendered.
The Trustee shall promptly mail to each holder of Debentures accepted for
payment an amount equal to the Repurchase Price for such Debentures, and the
Trustee shall promptly authenticate and mail to each holder a new Debenture
equal in principal amount to any unpurchased portion of the Debentures
surrendered.
Except as described above with respect to a Repurchase Event, the Indenture
does not contain any other provisions that permit the holders of the Debentures
to require that the Company repurchase or redeem the Debentures in the event of
a takeover or similar transaction. The provisions of the Indenture relating to
the purchase of Debentures upon a Repurchase Event may impede the completion of
a merger, tender offer or
34
<PAGE> 36
other takeover attempt. Neither the Trustee nor the Company's Board of Directors
may relieve the Company of its obligation to repurchase Debentures.
Credit agreements or other agreements relating to Senior Indebtedness to
which the Company becomes a party may prohibit the Company from purchasing any
Debentures or may provide that certain change in control events with respect to
the Company would constitute a default under such agreements. In the event a
Repurchase Event occurs at a time when the Company is prohibited from purchasing
Debentures under its secured indebtedness or any other Senior Indebtedness, the
Company could seek the consent of its lenders for the purchase of Debentures or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Debentures. In such case, the Company's
failure to purchase tendered Debentures would constitute an Event of Default
under the indenture. In such circumstances, the subordination provisions in the
Indenture would restrict payments to the holders of Debentures. The Company may
not have sufficient funds to repurchase the Debentures upon a Repurchase Event.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture to include: (i) a default
in payment of principal or premium, if any, on the Debentures when the same
becomes due and payable at maturity, upon redemption or otherwise, whether or
not prohibited by the subordination provisions of the Indenture; (ii) a default
in the payment of any interest upon any Debenture when it becomes due and
payable, and continuance of such default for a period of 15 days; (iii) a
default by the Company in the performance or breach of any other covenant or
warranty in the Indenture which continues for 30 days after the Company has
received notice of such default from the holders of at least 25% of the
outstanding principal amount of the Debentures; (iv) certain defaults under any
obligations for money borrowed aggregating $1,000,000 or more; or (v) certain
events involving bankruptcy, insolvency or reorganization of the Company or a
significant subsidiary. The Indenture provides that the Trustee is required,
within 90 days after the occurrence of a default which is known to the Trustee
and is continuing, to give to the holders of the Debentures notice of such
default; provided that, except in the case of default in the payment of
principal or premium, if any, or interest on any of the Debentures, the Trustee
shall be protected in withholding such notice if it in good faith determines
that the withholding of such notice is in the interest of the holders of the
Debentures.
The Indenture provides that if any Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Debentures then outstanding may declare the principal of all the
Debentures to be due and payable immediately, but if the Company shall cure all
defaults (other than the nonpayment of interest and premium, if any, on and
principal of any Debentures which shall have become due solely by reason of
acceleration) and certain other conditions are met, such declaration may be
annulled and past defaults may be waived by the holders of 50% in principal
amount of the Debentures then outstanding.
The holders of a majority in principal amount of the Debentures then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee subject to
certain limitations specified in the Indenture.
In certain cases, the holders of a majority in principal amount of the
outstanding Debentures may on behalf of the holders of all Debentures waive any
past default except, unless theretofore cured, a default in the payment of the
principal of, premium, if any, or interest on any of the Debentures (other than
the nonpayment of interest and premium, if any, on and principal of any
Debentures which shall become due by acceleration) or a default relating to an
obligation of the Company which cannot be modified without the consent of the
holder of each Debenture affected.
MERGERS AND SALES OF ASSETS BY THE COMPANY
Subject to the provisions described above under "Repurchase Event", the
Company may consolidate with or merge into any other corporation, sell or
transfer all or substantially all of its assets to any person, provided that the
Company is not otherwise in default under the Indenture after giving effect to
the transaction and that
35
<PAGE> 37
the successor (or the acquiror of the Managed Care business) shall be organized
and existing under the laws of the United States or any State thereof and shall
assume all of the obligations of the Company under the Indenture and shall make
provision for the conversion rights.
MODIFICATION OF THE INDENTURE
Under the Indenture, the rights and obligations of the Company and the
rights of Holders of the Debentures may be modified by the Company and the
Trustee only with the consent of the Holders of not less than a majority in
principal amount of the Debentures then outstanding; but no extension of the
maturity of any Debenture, or reduction in the interest rate or premium, if any,
or extension of the time of payment of interest, or any other modification in
the terms or payment of the principal of, or premium, if any, or interest on the
Debentures, or any modification of the subordination provisions in a manner
adverse to the Holders, or adversely affecting the conversion rights or reducing
the percentage required for modification, will be effective against any Holder
without his consent.
MISCELLANEOUS
No holder of a Debenture may institute any action against the Company under
the Indenture (except actions for payment of overdue principal, premium, if any,
or interest or the conversion of the Debentures) unless the holders of at least
25% of the principal amount of Debentures then outstanding shall have requested
the Trustee to institute such action, and the Trustee shall not have instituted
such action within 60 days of such request.
No recourse shall be had for the payment of the principal, interest or
premium, if any, on the Debentures or for any claim based thereon or otherwise
in respect thereof or based on or in respect of the Indenture against any
shareholder, officer, director, agent or employee of the Company. Each holder of
Debentures by accepting a Debenture agrees to the foregoing provision.
As long as any Debentures are outstanding, the Company will furnish holders
of Debentures all quarterly and annual financial reports sent to the holders of
the Common Stock of the Company.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, a Massachusetts banking corporation,
will be the Trustee under the Indenture. The Indenture will contain certain
limitations on the right of the Trustee, as a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest, as defined in the Trust Indenture Act, it must eliminate
such conflict or resign.
The Holders of a majority in principal amount of all outstanding Debentures
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, provided that
such direction does not conflict with any rule of law or with the Indenture. The
Indenture will provide that in case an Event of Default shall occur and be known
to the Trustee (which shall not be cured) the Trustee will be required to use
the degree of care of a prudent man in the conduct of his own affairs in the
exercise of its power. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the Holders, unless they shall have offered to the Trustee
security and indemnity satisfactory to it.
The Company has no outstanding borrowings from, and no other business
relationship with, the Trustee.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 200,000 shares of
Preferred Stock, $1.00 par value per share, 20,000,000 shares of Nonvoting
Common Stock, $0.10 par value per share, and 20,000,000 shares of Common Stock,
$.10 par value per share. The terms and conditions of the Company's capital
stock are governed by the laws of Michigan, as well as by the Company's Articles
of Incorporation and By-Laws.
36
<PAGE> 38
PREFERRED STOCK
Preferred Stock may be issued from time to time in series having such
designated preferences and rights, qualifications and limitations as the Board
of Directors may determine without any approval of shareholders. Preferred Stock
could be given voting and conversion rights which would dilute the voting power
and equity liquidation rights. None of the Preferred Stock is outstanding and
the Company has no present plans to issue any such shares. In addition, the
issuance of Preferred Stock by the Board of Directors could be utilized, under
certain circumstances, as a method preventing a takeover of the Company.
COMMON STOCK
As of March 1, 1997, the Company had 6,090,969 shares of Common Stock
issued and outstanding, all of which are fully paid, validly issued and
non-assessable. As of March 1, 1997, there were 525 holders of record of the
Common Stock. Holders of Common Stock are entitled to one vote per share and do
not have cumulative voting rights. Shareholders have no pre-emptive rights to
purchase additional shares. Subject to preferences which may be granted to
holders of Preferred Stock, holders of Common Stock are entitled to share in
such dividends as the Board of Directors, in its discretion, may validly declare
from funds legally available. In the event of liquidation, each outstanding
share of Common Stock entitles its holder to participate ratably in the assets
remaining after payment of liabilities.
As of March 1, 1997, the Company had no shares of Nonvoting Common Stock
outstanding and the Company has no present plans to issue any such shares. The
Nonvoting Common Stock is identical in all respects to the Common Stock, except
as to voting. Except as otherwise required by law, holders of Nonvoting Common
Stock are not entitled to vote on matters as to which a vote of the shareholders
of the Company is to be taken.
ANTI-TAKEOVER LEGISLATION
Michigan law provides that the Company shall furnish to a shareholder upon
request and without charge a full statement of the designations, relative
rights, preferences and limitations of the shares of each class authorized to be
issued, and the authority of the Board of Directors to designate and prescribe
the relative rights, preferences and limitations of preferred shares.
Chapters 7A and 7B of the Michigan Business Corporation Act may affect
attempts to acquire control of the Company. In general, under Chapter 7A,
"business combinations" (defined to include, among other transactions, certain
mergers, dispositions of assets or shares and recapitalization) between covered
Michigan business corporations or their subsidiaries and an "interested
shareholder" (defined as the direct or indirect beneficial owner of at least 10
percent of the voting power of a covered corporation's outstanding shares) can
only be consummated if approved by at least 90 percent of the votes of each
class of the corporation's shares entitled to vote and by at least two-thirds of
such voting shares not held by the interested shareholder or affiliates, unless
five years have elapsed after the person involved became an "interested
shareholder" and unless certain price and other conditions are satisfied. The
Board of Directors has the power to elect to be subject to Chapter 7A as to
specifically identified or unidentified interested shareholders. Upon completion
of the Offering, Mr. Henry S Dorfman will continue to beneficially own more than
30 percent of the outstanding Common Stock and, if the Board of Directors elects
to be subject to Chapter 7A, Mr. Dorfman will be able to prevent the attainment
of the required supermajority approval.
In general, under Chapter 7B, an entity that acquires "Control Shares" of
the Company may vote the Control Shares on any matter only if a majority of all
shares, and of all non-"Interested Shares", of each class of stock entitled to
vote as a class, approve such voting rights. Interested Shares are shares owned
by officers of the Company, employee-directors of the company and the entity
making the Control Share Acquisition. Control Shares are shares that, when added
to shares already owned by an entity, would give the entity voting power in the
election of directors or any of three thresholds: one-fifth, one-third and a
majority. The effect of the statue is to condition the acquisition of voting
control of a corporation on the approval of a majority of the pre-existing
disinterested shareholders. The Board of Directors may amend the bylaws before a
Control Share Acquisition occurs to provide that Chapter 7B does not apply to
the Company.
37
<PAGE> 39
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is National City
Bank, Cleveland, Ohio.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
for whom Roney & Co. is acting as representative (the "Representative"), have
individually agreed to purchase from the Company the principal amounts of
Debentures set forth below opposite their respective names at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such Debentures if any are
purchased.
<TABLE>
<CAPTION>
PRINCIPAL
NAME AMOUNT
---- ---------
<S> <C>
Roney & Co, L.L.C........................................... $
-----------
Total................................................ $15,000,000
===========
</TABLE>
The Underwriters propose to offer the Debentures to the public initially at
the offering price set forth on the cover page of this Prospectus and to certain
broker dealers at such offering price less a concession not to exceed % of the
principal amount. The Underwriters may allow, and such broker dealers may
re-allow, a concession, not to exceed % of the principal amount, on sales to
other broker dealers. The offering price and concessions to broker dealers may
be changed by the Underwriters after the initial offering.
The offering of the Debentures is made for delivery when, as and if
accepted by the Underwriters, subject to prior sale and withdrawal, cancellation
or modification of the offer without notice.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days from the date of this Prospectus, to purchase up to an
additional $2,250,000 principal amount of Debentures to cover over-allotments.
The Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the $15,000,000 principal amount of Debentures
offered hereby. If purchased, the Underwriters will sell such additional
Debentures on the same terms on which the $15,000,000 principal amount of
Debentures are being offered.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933.
In connection with this offering, certain Underwriters and selling group
members, if any, or their respective affiliates may engage in passive market
making transactions in the Common Stock on The Nasdaq National Market in
accordance with Rule 103 of Regulation M. Passive market making consists of,
among other things, displaying bids limited by the bid prices of independent
market makers and purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified prior period and all possible market
making activity must be discontinued when such limit is reached. Passive market
making may stabilize the market price of the Common Stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.
38
<PAGE> 40
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Honigman Miller Schwartz and Cohn, Detroit, Michigan. Certain legal
matters in connection with the issuance of the Debentures offered hereby will be
passed upon for the Underwriters by Dykema Gossett PLLC, Detroit, Michigan.
EXPERTS
The audited consolidated financial statements and financial statement
schedule of the Company as of May 26, 1995 and May 31, 1996, and for each of the
three years in the period ended May 31, 1996, included in this Prospectus and
incorporated herein by reference to the Company's Annual Report on Form 10-K
have been included and incorporated herein in reliance upon the reports of
Coopers & Lybrand L.L.P., independent accountants, given upon their authority as
experts in accounting and auditing. The reports of Coopers & Lybrand L.L.P. are
dual dated to include Note 6 to the 1996 audited consolidated financial
statements which discloses the amendment of the Company's secured indebtedness,
which amendment occurred subsequent to the date of their original report.
39
<PAGE> 41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of Thorn Apple Valley, Inc. and
Subsidiaries:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of May 26, 1995 and May 31,
1996 and December 13, 1996 (Unaudited).................... F-3
Consolidated Statements of Operations for the Years Ended
May 27, 1994, May 26, 1995 and May 31, 1996 and the
Twenty-Eight Weeks Ended December 8, 1995 and December 13,
1996 (Unaudited).......................................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended May 27, 1994, May 26, 1995 and May 31, 1996
and the Twenty-Eight Weeks Ended December 13, 1996
(Unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
May 27, 1994, May 26, 1995 and May 31, 1996 and the
Twenty-Eight Weeks Ended December 13, 1996 (Unaudited).... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Thorn Apple Valley, Inc.
Southfield, Michigan
We have audited the accompanying consolidated balance sheets of Thorn Apple
Valley, Inc. and Subsidiaries as of May 26, 1995 and May 31, 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended May 31, 1996. These
financial statements are the responsibility for the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Thorn Apple
Valley, Inc. and Subsidiaries as of May 26, 1995 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 31, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Detroit, Michigan
August 26, 1996, except as to the information presented
as a subsequent event in Note 6, for which the date is
September 12, 1996
F-2
<PAGE> 43
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 26, MAY 31, DECEMBER 13,
1995 1996 1996
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,730,637 $ 5,809,559 $ 7,880,815
Short-term investments.................................... 531,064 627,560 500,000
Accounts receivable, net of allowance for doubtful
accounts (May 1995, $789,100; May 1996, $621,800;
December 1996, $786,000)................................ 40,083,861 62,371,990 82,394,002
Inventories (Note 2)...................................... 44,800,792 56,263,210 58,896,821
Refundable income taxes................................... 1,366,231 11,490,330
Deferred income taxes (Note 7)............................ 2,499,000 2,199,000 2,647,400
Prepaid expenses and other current assets................. 4,073,817 5,732,537 5,461,050
------------ ------------ ------------
Total current assets.................................... 98,085,402 144,494,186 157,780,088
------------ ------------ ------------
Property, plant and equipment:
Land...................................................... 1,139,439 1,519,976 1,369,884
Buildings and improvements................................ 37,694,988 61,640,117 62,109,687
Machinery and equipment................................... 117,712,476 155,911,312 158,005,611
Transportation equipment.................................. 7,529,516 7,498,075 7,345,743
Property under capital leases............................. 7,428,634 10,301,819 9,956,881
Construction in progress.................................. 22,206,233 4,475,987 5,305,274
------------ ------------ ------------
193,711,286 241,347,286 244,093,080
Less accumulated depreciation........................... 95,643,621 98,938,159 106,913,308
------------ ------------ ------------
98,067,665 142,409,127 137,179,772
------------ ------------ ------------
Other assets:
Intangible assets, net of accumulated amortization of
$839,300 and $1,291,231 at May 31,1996 and December 13,
1996, respectively...................................... 32,732,700 32,280,769
Other..................................................... 8,143,298 5,980,190 6,579,138
------------ ------------ ------------
Total other assets...................................... 8,143,298 38,712,890 38,859,907
------------ ------------ ------------
$204,296,365 $325,616,203 $333,819,767
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 32,474,150 $ 46,970,024 $ 48,231,651
Notes payable, banks (Note 3)............................. 5,960,000 14,700,000
Notes payable, officer (Note 4)........................... 1,415,241 121,366 24,786
Accrued liabilities (Note 5).............................. 23,378,430 20,840,961 30,079,170
Current portion of long-term debt (Note 6)................ 3,100,310 2,818,444 4,578,198
Income taxes.............................................. 180,361
------------ ------------ ------------
Total current liabilities............................... 66,328,131 85,450,795 83,094,166
------------ ------------ ------------
Long-term debt (Note 6)..................................... 35,464,669 159,808,923 165,447,644
------------ ------------ ------------
Deferred income taxes (Note 7).............................. 3,908,000 3,631,000 5,160,000
------------ ------------ ------------
Shareholders' equity:
Preferred stock: $1 par value; authorized 200,000 shares;
issued none
Common nonvoting stock: $.10 par value;
authorized 20,000,000 shares; issued none
Common voting stock: $.10 par value; authorized 20,000,000
shares; issued 5,770,647 shares in May 1995; 5,786,129
shares in May 1996 and 6,075,152 shares in December
1996.................................................... 577,065 578,613 607,515
Capital in excess of par value............................ 6,771,071 7,011,361 10,070,188
Retained earnings......................................... 91,247,429 69,135,511 69,440,254
------------ ------------ ------------
98,595,565 76,725,485 80,117,957
------------ ------------ ------------
$204,296,365 $325,616,203 $333,819,767
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 44
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED TWENTY-EIGHT WEEKS ENDED
-------------------------------------------- ---------------------------
MAY 27, MAY 26, MAY 31, DECEMBER 8, DECEMBER 13,
1994 1995 1996 1995 1996
------- ------- ------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................. $772,098,333 $744,542,466 $ 983,084,427 $514,907,690 $545,967,563
Operating costs and
expenses:
Cost of goods sold,
including delivery
costs................. 693,784,481 669,068,064 932,130,906 476,745,022 496,402,862
Selling.................. 24,155,852 25,377,029 37,533,477 21,262,134 17,575,687
General and
administrative........ 22,339,197 22,911,735 26,515,629 15,427,096 15,635,581
Depreciation and
amortization.......... 8,262,515 9,830,100 15,378,777 8,045,656 9,396,874
Restructuring charge
(Note 12)............. 7,857,319
------------ ------------ -------------- ------------ ------------
748,542,045 735,044,247 1,011,558,789 521,479,908 539,011,004
------------ ------------ -------------- ------------ ------------
Income (loss) from
operations............... 23,556,288 9,498,219 (28,474,362) (6,572,218) 6,956,559
------------ ------------ -------------- ------------ ------------
Other expense (income):
Interest, net............ 2,151,359 2,258,674 8,491,769 4,546,783 7,002,401
Other, net............... (895,444) (960,341) (2,408,387) (632,885) (699,585)
------------ ------------ -------------- ------------ ------------
1,255,915 1,298,333 6,083,382 3,913,898 6,302,816
------------ ------------ -------------- ------------ ------------
Income (loss) before income
taxes.................... 22,300,373 8,199,886 (34,557,744) (10,486,116) 653,743
Provision (benefit) for
income taxes (Note 7).... 8,217,000 2,945,000 (12,850,000) (3,564,000) 349,000
------------ ------------ -------------- ------------ ------------
Net income (loss).......... $ 14,083,373 $ 5,254,886 $ (21,707,744) $ (6,922,116) $ 304,743
============ ============ ============== ============ ============
Earnings (loss) per share
of common stock.......... $2.40 $0.91 $(3.76) $(1.20) $0.05
============ ============ ============== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 45
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 28, 1993......................... 5,920,106 $592,011 $ 7,405,250 $ 78,311,895
Net income.................................... 14,083,373
Cash dividends, $.27 per share................ (1,584,003)
Exercise of stock options including related
tax benefits (Note 8)....................... 9,500 950 133,039
Purchase and retirement of common stock....... (126,533) (12,654) (2,759,791)
--------- -------- ----------- ------------
Balance, May 27, 1994......................... 5,803,073 580,307 4,778,498 90,811,265
Net income.................................... 5,254,886
Cash dividends, $.28 per share................ (1,610,575)
Exercise of stock options including related
tax benefits and other stock plans (Note
8).......................................... 104,645 10,465 2,161,423
Purchase and retirement of common stock....... (137,071) (13,707) (168,850) (3,208,147)
--------- -------- ----------- ------------
Balance, May 26, 1995......................... 5,770,647 577,065 6,771,071 91,247,429
Net loss...................................... (21,707,744)
Cash dividends, $.07 per share................ (404,174)
Shares issued under employee stock purchase
plan........................................ 15,482 1,548 240,290
--------- -------- ----------- ------------
Balance, May 31, 1996......................... 5,786,129 578,613 7,011,361 69,135,511
(UNAUDITED INTERIM INFORMATION)
Net income.................................... 304,743
Sale of common stock to an officer of the
Company..................................... 279,883 27,988 2,972,358
Shares issued under employee stock purchase
plan........................................ 9,140 914 86,469
--------- -------- ----------- ------------
Balance, December 13, 1996.................... 6,075,152 $607,515 $10,070,188 $ 69,440,254
========= ======== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 46
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED TWENTY-EIGHT WEEKS ENDED
------------------------------------------ ---------------------------
MAY 27, MAY 26, MAY 31, DECEMBER 8, DECEMBER 13,
1994 1995 1996 1995 1996
------- ------- ------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 14,083,373 $ 5,254,886 $(21,707,744) $ (6,922,116) $ 304,743
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation.................................... 8,262,515 9,830,100 14,539,477 7,593,725 8,944,943
Restructuring charge............................ 6,915,646
Amortization of intangibles..................... 839,300 451,931 451,931
Deferred income taxes........................... 656,000 353,000 23,000 792,000 1,080,600
(Gain) loss on disposition of property, plant
and equipment................................. (813) (15,451) 13,568 438,885 (123,625)
Provision for losses on accounts receivable..... (100,500) 57,300 133,951 332,000 164,200
Gain on sale of long-term investments........... (627,802)
(INCREASE) DECREASE IN ASSETS:
Accounts receivable............................. (6,800,467) 4,049,338 (12,724,100) (25,713,941) (20,186,212)
Inventories..................................... (5,610,119) (1,020,608) (2,949,079) (4,337,133) (2,633,611)
Refundable income taxes......................... 528,574 (1,366,231) (10,124,099) (4,483,342) 11,490,330
Prepaid expenses and other assets............... (362,919) (2,425,749) (2,404,887) (1,167,624) (199,901)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable................................ 7,289,671 (1,496,234) 14,495,874 11,679,853 1,261,627
Accrued liabilities............................. 3,452,205 2,094,826 (5,957,251) 5,393,046 9,238,209
Income taxes payable............................ 526,722 (526,722) 180,361
------------ ------------ ------------ ------------ ------------
Total adjustments............................... 7,840,869 16,449,215 (4,742,048) (9,020,600) 9,668,852
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities.................................... 21,924,242 21,704,101 (26,449,792) (15,942,716) 9,973,595
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of Wilson, net of cash
acquired (Note 11)............................ (64,630,873) (65,749,414)
Proceeds from sale of long-term investments..... 4,484,005
Proceeds from sale of property, plant and
equipment..................................... 2,311,269 412,926 2,712,129 494,110 803,568
Capital expenditures............................ (30,197,956) (43,367,769) (38,604,784) (28,987,088) (3,539,167)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities........... (27,886,687) (42,954,843) (96,039,523) (94,242,392) (2,735,599)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock sold to company
officer....................................... 3,000,346
Proceeds from long-term debt.................... 20,500,000 8,000,000 122,500,000 122,500,000 8,400,000
Principal payments on long-term debt............ (1,940,256) (2,008,117) (6,215,552) (2,966,058) (1,857,889)
Net borrowings (payments) under lines of
credit........................................ 5,960,000 8,740,000 (5,960,000) (14,700,000)
Net borrowings from (payments to) officers...... 387,406 (582,788) (1,293,875) (709,267) (96,580)
Dividends paid.................................. (1,584,003) (1,610,575) (404,174) (404,174)
Proceeds from employee stock purchase plan...... 241,838 130,050 87,383
Purchase and retirement of common stock......... (2,772,445) (3,390,704)
Proceeds from stock options exercised including
related tax benefits.......................... 133,989 2,171,888
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities.................................... 14,724,691 8,539,704 123,568,237 112,590,551 (5,166,740)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash................. 8,762,246 (12,711,038) 1,078,922 2,405,443 2,071,256
Cash and cash equivalents, beginning of year.... 8,679,429 17,441,675 4,730,637 4,730,637 5,809,559
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of year.......... $ 17,441,675 $ 4,730,637 $ 5,809,559 $ 7,136,080 $ 7,880,815
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized.......... $ 2,336,000 $ 4,003,000 $ 10,877,142 $ 5,465,522 $ 8,685,643
============ ============ ============ ============ ============
Income taxes paid (refunded), net............. $ 6,207,000 $ 3,991,000 $ (2,858,701) $ 33,429 $(12,402,817)
============ ============ ============ ============ ============
Noncash investing activities:
Capital lease obligations..................... $ 895,578 $ 2,935,020 $ 256,852 $ 84,740 $ 856,364
============ ============ ============ ============ ============
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-6
<PAGE> 47
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996, MAY 26, 1995 AND MAY 27, 1994 AND THE
TWENTY-EIGHT WEEKS ENDED DECEMBER 13, 1996 AND DECEMBER 8, 1995 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS:
The Company is engaged in the manufacture 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.
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
The consolidated financial statements as of and for the twenty-eight weeks
ending December 13, 1996 and December 8, 1995 are unaudited. In the opinion of
management, they include all adjustments consisting of normal recurring items,
necessary for a fair presentation of financial position and results of
operations. The results of operations are not necessarily indicative of the
results which may be expected for the full year.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits and
short-term investments with a maturity of three months or less at the date of
acquisition.
SHORT-TERM INVESTMENTS:
Short-term investments are those with a maturity in excess of three months
at the date of acquisition and are valued at cost, which approximates market.
INVENTORIES:
Substantially all inventories are stated at the lower of last-in, first-out
("LIFO") cost or market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Upon retirement or
disposal of property, plant and equipment, the cost and accumulated depreciation
are removed from the accounts, and any gain or loss is included in other income.
Depreciation is computed for financial reporting purposes generally on the
straight-line basis over the estimated useful lives of the assets. The cost of
repairs and maintenance is charged against results of operations as incurred.
Inactive assets held for sale are recorded at the lower of net book value (cost
less accumulated depreciation) or net realizable value. The Company capitalized
interest incurred on debt
F-7
<PAGE> 48
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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 future operations.
IMPAIRMENT OF LONG-LIVED ASSETS:
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires that carrying values of long-lived
assets and certain identifiable intangible assets be evaluated based on the
future (undiscounted and without interest charges) cash flows expected to be
realized from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows from an asset is less than the carrying value, an
impairment loss must be recognized. SFAS No. 121 is effective for fiscal years
commencing after December 15, 1995. The Company will adopt SFAS No. 121 in the
fiscal year beginning on June 1, 1996, the impact is not expected to be material
to the Company's financial position or results of operations.
COMMODITY OPTIONS AND FORWARD CONTRACTS:
The Company has a variety of commodity option and forward contracts.
Realized gains and losses are recognized currently in income and expenses. The
Company utilizes price risk management activities and hedging procedures in an
effort to minimize the potential adverse effects from raw material market price
level changes. Risk management and hedging activities are often utilized with
forward sales contracting, with forward raw material procurement and with margin
management. Hedging approaches are typically used to protect margins on forward
sales obligations and for freezer inventories. The majority of the Company's
finished product sales are not hedged as they are manufactured from raw material
procured from current production.
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 1996, 1995 and 1994 were 5,778,559, 5,754,726 and 5,877,789,
respectively.
The potential dilution from shares issuable under employee stock option
plans is excluded from the computation of the weighted average number of common
shares outstanding since it is not material.
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
The weighted average number of shares for the twenty-eight weeks ended
December 13, 1996 and December 8, 1995 were 5,924,644 and 5,774,736,
respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Statement requires the
Company either to recognize an expense for stock compensation in the financial
statements using a fair-value-based method or to continue to measure
compensation expense using the intrinsic value method prescribed in Accounting
Principles Board Opinion
F-8
<PAGE> 49
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
("APBO") No. 25, "Accounting for Stock Issued to Employees," with additional pro
forma footnote disclosure regarding the impact on net earnings and net earnings
per share as if the fair-value-based method of accounting had been applied. SFAS
No. 123 is effective for fiscal years commencing after December 15, 1995. The
Company will adopt SFAS No. 123 in the fiscal year beginning June 1, 1996.
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 26, 1995 and May 27, 1994 are for 52-week periods.
RECLASSIFICATIONS:
Certain amounts from prior years have been reclassified to conform with the
current year presentations.
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
Certain amounts from prior years have been reclassified to conform with the
current years interim period financial presentation.
2. INVENTORIES:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
At lower of cost or market:
Supplies.................................................... $ 9,559,537 $ 6,824,152
Raw materials............................................... 23,518,145 11,389,564
Work in process............................................. 3,588,512 4,914,163
Finished goods.............................................. 36,281,016 24,622,913
----------- -----------
72,947,210 47,750,792
Less LIFO reserve........................................... 16,684,000 2,950,000
----------- -----------
$56,263,210 $44,800,792
=========== ===========
</TABLE>
The LIFO method of accounting for inventories had the effect (after income
taxes) of decreasing net income by approximately $8,927,000 ($1.54 per share)
for the year ended May 31, 1996 and increasing net income by approximately
$1,282,000 ($.22 per share) and $538,000 ($.09 per share) for the years ended
May 26, 1995 and May 27, 1994, respectively.
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
No provision has been made during the current fiscal year for last-in,
first-out (LIFO) reserve adjustments. Inventories would have been approximately
$16,684,000 higher at December 13, 1996 if the first-in, first-out (FIFO) method
had been used for inventory valuation.
3. LINES OF CREDIT AND SHORT-TERM BORROWINGS:
At May 31, 1996, the Company had $20 million in temporary unsecured lines
of credit with four participating banks, of which $5,300,000 was unused. The
temporary, short-term lines, with interest at the prime rate of 8.25% at May 31,
1996, were used to fund working capital needs and were set to expire on May 31,
1996, however, the financial institutions have agreed as part of the debt
amendments to replace these short-term lines with a new seasonal line of credit
expiring January 31, 1997 (see Note 6 for further discussion of long-term debt
amendments).
F-9
<PAGE> 50
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. LINES OF CREDIT AND SHORT-TERM BORROWINGS -- (CONTINUED)
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
At December 13, 1996 none of the seasonal line of credit was drawn upon.
4. NOTES PAYABLE, OFFICER, AND OTHER RELATED PARTY TRANSACTIONS:
Notes payable, officer, are due on demand, with interest payable monthly at
approximately 1 percent below the prime rate. Interest expense on the notes
payable, officer, amounted to approximately $76,600, $226,400 and $150,600 for
the years ended 1996, 1995 and 1994, respectively.
Accounts receivable include a noninterest-bearing note receivable from a
trust that has purchased life insurance policies for certain officers and other
employees. The balance of the note was approximately $804,000 and $1,700,000 at
May 31, 1996 and May 26, 1995, respectively.
The Company leased its previous sales division office building from
entities controlled by certain officers/shareholders of the Company. During
1996, 1995 and 1994, the Company paid rent of approximately $165,500, $174,600
and $174,600, respectively, for the use of this location.
The Company maintains inventory at a freezer warehouse that is 75 percent
owned by an officer and director of the Company. Storage and handling expenses
paid to this freezer warehouse amounted to approximately $2,076,000, $2,311,000
and $1,071,000 for the years ended 1996, 1995 and 1994, respectively.
Additionally, the Company rents a portion of the freezer warehouse for use as a
distribution center. Currently, the Company is operating under a one year lease
option that expires in January 1997. Freezer warehouse rent expense amounted to
$882,000 for the years ended 1996, 1995 and 1994.
5. ACCRUED LIABILITIES:
Included within accrued liabilities are employee benefits representing self
insured programs of $4,588,849 and $3,842,068 at May 31, 1996 and May 26, 1995,
respectively.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
A. Revolving credit agreement.............................. $ 80,000,000
B. Private placements notes................................ 65,500,000 $23,000,000
C. Revenue bonds........................................... 10,629,449 9,785,733
D. Obligations under capital leases........................ 5,143,814 4,096,304
E. Other note.............................................. 1,354,104 1,682,942
------------ -----------
162,627,367 38,564,979
Less current portion................................... 2,818,444 3,100,310
------------ -----------
$159,808,923 $35,464,669
============ ===========
</TABLE>
A. The unsecured revolving credit agreement is with four financial
institutions at variable interest rates no higher than the prime rate or its
equivalent. The commitments under the revolving credit agreement expire on May
30, 1998, but may be extended annually for successive one-year periods with the
consent of the financial institutions. The commitment fee on the unused portion
of the facility is .25 percent per annum. The weighted average interest rate at
May 31, 1996 was 6.60 percent.
F-10
<PAGE> 51
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. LONG-TERM DEBT -- (CONTINUED)
B. At May 31, 1996, the outstanding balance consisted of three separate
issues of unsecured notes in private placements to institutional investors. The
first outstanding issue, issued on April 1, 1994, was in the principal amount of
$15,000,000 and bore interest at a fixed rate of 6.45 percent per annum. The
principal on the first issue is due in equal annual installments of $1,666,666
beginning April 1, 1998, and ending April 1, 2005, with the remaining principal
payable at maturity on April 21, 2006. The second outstanding issue, issued on
October 1, 1994, was in the principal amount of $8,000,000 and bore interest at
a fixed rate of 8.42 percent per annum. The principal on the second issue is due
at maturity on October 1, 2003. Interest on the first two issues is payable
semi-annually on the first day of April and October of each year. The third
outstanding issue, issued on May 30, 1995, was in the principal amount of
$42,500,000, and bore interest at a fixed rate of 7.58 percent per annum. The
principal on the third issue is due in annual installments of $6,071,429
beginning May 15, 1999, and ending May 15, 2004, with the remaining principal
payable at maturity on May 15, 2005. Interest is payable semi-annually on the
fifteenth day of May and November of each year.
C. At May 31, 1996, the outstanding principal balance of the revenue bonds
consisted of three separate bond issues. The first outstanding issue, referred
to as the industrial revenue bond, is at $2,550,000 with varying quarterly
principal payments due July 1, 1996 through January 1, 2000, and quarterly
interest at 81.1042 percent of the current prime rate (at May 31, 1996 the
interest rate was 6.69 percent).
The second outstanding issue, which is referred to as the limited
obligation revenue bond, is at $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 1996,
averaged 4.21 percent.
The third outstanding issue referred to as the economic development revenue
bond, is at $2,579,449 with varying monthly principal and interest at 6 percent
per annum through maturity on June 30, 2000.
The first and third issues are collateralized by property, plant and
equipment, while the second bond issue is collateralized by a $5,600,000 letter
of credit.
D. The obligations under capital leases are at fixed interest 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>
1996 1995
---- ----
<S> <C> <C>
Machinery and equipment..................................... $10,301,819 $7,428,634
Less accumulated amortization............................. 3,408,120 2,752,543
----------- ----------
$ 6,893,699 $4,676,091
=========== ==========
</TABLE>
Future minimum rentals for property under capital leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ----------- ------
<S> <C>
1997........................................................ $1,768,780
1998........................................................ 1,684,065
1999........................................................ 1,601,654
2000........................................................ 647,424
2001........................................................ 161,811
----------
Total minimum lease obligation.............................. 5,863,734
Less interest............................................. 719,920
----------
Present value of total minimum lease obligation............. $5,143,814
==========
</TABLE>
F-11
<PAGE> 52
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. LONG-TERM DEBT -- (CONTINUED)
E. The note is secured by a second lien on certain property, plant and
equipment. Principal and interest are due quarterly through the date of maturity
on September 13, 2000. The interest is at a fixed rate of 7 percent per annum.
The aggregate maturities of long-term debt (excluding obligations under
capital leases) during the five years subsequent to May 31, 1996 are: 1997,
$1,390,889, 1998, $3,222,871, 1999, $89,402,449, 2000, $9,314,402, and 2001,
$8,033,894.
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.
SUBSEQUENT EVENT-LONG-TERM DEBT AMENDMENTS:
On May 31, 1996, the Company was in non-compliance with certain financial
covenants relating to its unsecured revolving credit agreement, its private
placement note agreements, and a $5.5 million limited obligation revenue bond
agreement. On September 11, 1996, the Company entered into agreements with the
participating lenders to restructure the Company's revolving credit and note
agreement facilities and the Company's limited obligation revenue bond
agreement. As part of that restructuring, the lenders waived past
non-compliance's with financial covenants and covenants were modified on a
going-forward basis. The following is a description of the significant changes
in the terms of the Company's borrowing agreements:
1. Under the revolving credit agreement the $80 million credit limit
has been increased to $90 million and the interest under such agreement
will be payable on a monthly basis at an interest rate equal to prime plus
one quarter percent.
2. The interest rate on the private placement note agreements has been
increased by two percentage points and accrued interest is now required to
be paid on a monthly basis.
3. A $20 million short-term line of credit has been provided, which
expires on January 31, 1997, and bears interest at an interest rate equal
to prime plus two percent and which is secured by a first lien on
substantially all of the Company's assets.
4. The Company has granted a second lien on substantially all of the
Company's assets which is shared on a pro-rata basis by the $90 million
revolving credit lenders, the $65.5 million private placement note lenders
and the $5.5 million limited obligation lender.
5. The Chairman of the Board of Directors of the Company, who is also
a significant shareholder of the Company, has purchased approximately $3.0
million of the Company's newly-issued common stock from the Company at a
price per share determined by the average closing price of the Company's
common stock for the 20 trading days preceding the stock purchase. The
proceeds of such stock purchase will be used for working capital needs.
6. Under the agreements, the Company is obligated to pursue and obtain
by April 30, 1997 a minimum of $15 million in subordinated debt financing
through private placement. If such financing is obtained, of which there
can be no assurance, the proceeds from the subordinated debt issue will be
used to reduce the outstanding balance of the private placement notes,
revolving credit notes and limited obligation revenue bonds.
7. The agreements contain financial covenants with respect to
consolidated net worth (as defined therein) and interest coverage. The
Company is also required to achieve a prescribed level of consolidated
earnings available for interest expense. 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.
F-12
<PAGE> 53
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. LONG-TERM DEBT -- (CONTINUED)
The Company's two other revenue bond agreements contain restrictive
covenants that include the maintenance of a minimum level of consolidated net
worth (as defined therein) and of certain financial ratios. At May 31, 1996, the
Company was not in compliance with certain covenants contained in one of its
other revenue bond agreements and the Company has obtained unconditional waivers
of those violations from its lender through July 1, 1997.
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
The Company's other two revenue bond agreements contain restrictive
covenants that include the maintenance of a minimum level of consolidated net
worth (as defined therein) and of certain financial ratios. At December 13,
1996, the Company was not in compliance with certain covenants contained in its
industrial revenue bond agreement and the Company has obtained an unconditional
waiver of those violations from its lender through July 1, 1997. The Company has
classified this obligation as a current liability, as a result of the waiver
being less than one year in duration from the balance sheet date. The Company
does not expect its industrial revenue bond lender to call the debt at the end
of the waiver period.
7. INCOME TAXES:
The Company's provision (benefit) for income taxes was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Currently payable (benefit):
Federal.............................................. $ (9,939,000) $2,259,000 $6,874,000
State and local...................................... 333,000 638,000
------------ ---------- ----------
Total currently payable (benefit)............... (9,939,000) 2,592,000 7,512,000
Deferred:
Federal and state.................................... (2,911,000) 353,000 705,000
------------ ---------- ----------
Total provision................................. $(12,850,000) $2,945,000 $8,217,000
============ ========== ==========
</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 31, 1996 and
May 26, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation................................. $5,799,195 $3,449,100
Employee benefit plans....................... $1,720,818 $1,440,776
Bad debt expense............................. 234,635 297,373
Capital leases............................... 214,970 183,794
Restructuring charge......................... 916,901
Estimated losses on assets held for
disposal................................... 375,000
Amortization of intangibles.................. 524,563
Credit carryforward.......................... 3,169,895
All other.................................... 39,512 433,132 33,062 464,218
---------- ---------- ---------- ----------
Total deferred taxes.................... $5,539,860 $6,971,860 $2,688,112 $4,097,112
========== ========== ========== ==========
</TABLE>
F-13
<PAGE> 54
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. INCOME TAXES -- (CONTINUED)
A reconciliation of the provision for income taxes is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Federal income tax (benefit) at statutory
rate................................... $(12,095,000) (35) $2,870,000 35 $7,805,000 35
State and local income taxes, net of
federal income tax benefit............. 232,000 3 445,000 2
Lower tax rate attributable to foreign
sales corporation...................... (110,000) (138,000) (2) (202,000) (1)
Utilization of tax credits............... (873,000) (2.5)
Other.................................... 228,000 (19,000) 169,000 1
------------ ----- ---------- --- ---------- ---
$(12,850,000) (37.5) $2,945,000 36 $8,217,000 37
============ ===== ========== === ========== ===
</TABLE>
The credit carryforward of $3,169,895, for which the tax benefit has been
recognized, consists of general business credits of $1,552,729, which expire
between the years 2008 and 2011, and alternative minimum tax credit
carryforwards of $1,617,166, which can be carried forward indefinitely.
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
The Company's effective tax rate, was 53.4 percent and (34.0) percent for
the twenty-eight weeks ended December 13, 1996 and December 8, 1995,
respectively.
8. STOCK OPTION PLANS:
The Company's 1990 Employee Stock Option Plan authorizes the Company's
Stock Option Committee to grant options for up to 787,500 shares of the
Company's common stock to present or prospective employees. At May 31, 1996,
505,300 options were granted but not exercised and 213,000 shares remain to be
granted under the 1990 Plan. At May 31, 1996, there were 141,000 options granted
but not exercised under the 1982 Employee Stock Option Plan. The Company's Stock
Option Committee may designate any requirements regarding option price, waiting
period or an exercise date for options granted under the Plans, except that
incentive stock options may not be exercised at less than the fair market value
of the stock on the date of grant, and no option may remain outstanding for more
than 10 years.
The following is a summary of options granted under the Plans:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ------------------------ ----------------------
SHARES OPTION PRICE SHARES OPTION PRICE SHARES OPTION PRICE
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning...... 484,550 $2.56-$26.00 465,000 $2.56-$23.00 315,000 $2.56-$23.00
Exercised............... (100,200) $2.56-$26.00 (9,500) $2.56-$17.00
Canceled or
terminated............ (33,750) $17.00-$26.00 (50,750) $17.00-$26.00
Granted................. 195,500 $17.00 170,500 $26.00 159,500 $17.00
------- -------- -------
Balance, ending......... 646,300 $2.56-$26.00 484,550 $2.56-$26.00 465,000 $2.56-$23.00
======= ======== =======
</TABLE>
At May 31, 1996, there were 11 participants in the 1982 Employee Stock
Option Plan and 30 participants in the 1990 Employee Stock Option Plan.
F-14
<PAGE> 55
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. PENSION PLANS:
The Company and its subsidiaries have several defined benefit pension plans
covering substantially all of their nonsalaried employees. Benefits under these
plans are based on the employee's years of service, and the benefit obligations
are based upon the employee's expected date of retirement. Plan assets are
invested in corporate and government bonds, common stocks and a bank money
market fund. The Company's general funding policy is to contribute amounts
deductible for federal income tax purposes.
Net periodic pension cost for 1996, 1995 and 1994 includes the following
benefit and cost components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost.............................................. $ 346,101 $332,840 $ 320,182
Interest cost............................................. 711,024 645,329 597,299
Actual return on plan assets.............................. (1,474,259) (885,195) (282,059)
Net amortization and deferral............................. 738,998 250,402 (328,786)
----------- -------- ---------
Net periodic pension cost................................. $ 321,864 $343,376 $ 306,636
=========== ======== =========
</TABLE>
As of May 31, 1996 and May 26, 1995, the funded status of the defined
benefit plans, using the actuarial present value of the benefit obligation, is
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Vested benefit obligation................................... $ 9,209,690 $8,338,358
Projected and accumulated benefit obligation................ $ 9,750,990 $8,863,460
Plan assets at fair value................................... 10,367,441 8,627,451
----------- ----------
Projected benefit obligation (less than) greater than
assets.................................................... (616,451) 236,009
Unrecognized net gain (loss)................................ 186,085 (365,170)
Unrecognized net transition asset........................... 204,515 232,326
Unrecognized prior service cost............................. (46,993) (51,592)
----------- ----------
(Prepaid) accrued pension cost.............................. $ (272,844) $ 51,573
=========== ==========
Actuarial assumptions used for 1996, 1995 and 1994 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 $206,000, $207,000 and $169,000 in 1996, 1995 and 1994,
respectively.
10. 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. The Company
also leases various office space, as well as freezer storage space at a freezer
warehouse (Note 4). Rent expense under all operating leases amounted to
approximately $8,203,000,
F-15
<PAGE> 56
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. COMMITMENTS -- (CONTINUED)
$6,817,000 and $5,338,000 for the years ended 1996, 1995 and 1994, respectively.
Total future minimum rentals under noncancelable operating leases as of May 31,
1996, including those discussed in Note 4, are:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
<S> <C>
1997...................................................... $7,643,000
1998...................................................... 6,061,000
1999...................................................... 4,450,000
2000...................................................... 2,018,000
2001...................................................... 800,000
Thereafter................................................ 2,239,000
</TABLE>
LETTERS OF CREDIT:
At May 31, 1996, the Company had outstanding letters of credit totaling
approximately $8,040,000 which serve as collateral for an industrial revenue
bond issue, as discussed in Note 6, and various self-insured agreements.
FISCAL 1997 INTERIM INFORMATION (UNAUDITED):
At December 13, 1996, the Company had outstanding letters of credit
totaling approximately $9,540,000 which serves as collateral for an industrial
revenue bond issue as discussed in Note 6, 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. The MLE
supplied approximately 65% of the total hogs purchased by the Company in fiscal
1996. In consideration the Company will pay MLE $83,333 per month as a
facilities use and management fee. In accordance with the agreement, the Company
has purchased $2.0 million of preferred stock of MLE that pays a 6 percent
dividend. The Company has classified the investment in MLE in other long-term
assets on its consolidated balance sheet.
HAM PURCHASE AND PRODUCTION AGREEMENT:
In connection with the Wilson acquisition (see Note 11 to the Notes to the
Consolidated Financial Statements for further discussion related to the
acquisition), the Company assumed a production agreement (the "Production
Agreement") with a major meat packing company (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 is obligated to produce at such facility, on an
exclusive basis, all boneless ham products which the Company may require. In
return, the Company has 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 and any
extensions thereof. The Production Agreement has an initial term (the "Initial
Term") expiring on June 6, 2001 and may be renewed by the Company for up to five
successive three year terms (the "Option Periods"). If the Company fails to
renew the Production Agreement for each of the five Option Periods, or if the
Company terminates or breaches the Production Agreement, the Company will be
obligated to pay the $1,375,000 annual fee for the remainder of the Initial
Term, if any, and an annual payment of approximately
F-16
<PAGE> 57
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. COMMITMENTS -- (CONTINUED)
$408,000 for each remaining year of the five Option Periods. In such event, the
Producer must use its best efforts to utilize the vacated facility to mitigate
costs to the Company.
In addition to the Production Agreement, the Company has also assumed a
supply agreement with the Producer. The Company has agreed to purchase and the
Producer has agreed to supply 400,000 pounds of boneless ham muscles on a weekly
basis at a pricing formula equal to or more favorable than prices obtainable
from other competitive suppliers. The term of such supply agreement runs
concurrent with the term of the Production Agreement described above.
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. During
fiscal 1996, no amount was 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.
The following unaudited, pro forma, condensed, combined financial
information assumes the acquisition occurred at the beginning of fiscal 1995.
The results do not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of fiscal 1995, or of the results which
may occur in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MAY 26, 1995
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
----------------------
<S> <C>
Net sales................................................... $965,780
Income from operations...................................... $ 11,192
Net income.................................................. $ 2,377
Earnings per share.......................................... $ 0.41
</TABLE>
12. RESTRUCTURING CHARGES:
During the fourth quarter of fiscal 1995, the Company recorded a one-time,
pre-tax restructuring charge to operations of $7.9 million. 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. Under the restructuring plan, the Company
identified approximately 400 employees, both production and management, that
were terminated. The shut down of this facility was substantially completed by
the end of May 1995. 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-17
<PAGE> 58
=========================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE DEBENTURES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE DEBENTURES BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
Prospectus Summary...................... 3
Risk Factors............................ 8
The Company............................. 11
Use of Proceeds......................... 11
Price Range of Common Shares and
Dividends............................. 12
Capitalization.......................... 13
Selected Consolidated Financial Data.... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 16
Business................................ 22
Management.............................. 30
Description of Debentures............... 31
Description of Capital Stock............ 36
Underwriting............................ 38
Legal Matters........................... 39
Experts................................. 39
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
=========================================================
=========================================================
$15,000,000
[THORN APPLE VALLEY LOGO]
THORN APPLE
VALLEY, INC.
% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2007
--------------------------
PROSPECTUS
--------------------------
[RONEY & CO. LOGO]
, 1997
=========================================================
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated amounts of expenses to be
home by the Company in connection with the distribution of the securities
offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 5,227
NASD filing fee............................................. 2,225
Printing and engraving expenses............................. 60,000
Accounting fees and expenses................................ 50,000
Legal fees and expenses..................................... 100,000
Blue sky fees and expenses.................................. 2,000
Trustee fee................................................. 20,000
Miscellaneous expenses...................................... 35,548
--------
Total expenses.............................................. $275,000
========
</TABLE>
All of the figures above, other than the Securities and Exchange Commission
registration fee and the NASD filing fee, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is organized under the Michigan Business Corporation Act (the
"MBA") which, in general, empowers Michigan corporations to indemnify a person
who was or is a party or threatened to be made a party to any civil, criminal,
administrative or investigative action, suit or proceeding (other than actions
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or of another
enterprise at such corporation's request, against expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
in connection therewith if such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders and, in the case of a criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
If a person is successful in defending against a derivative action or
third-party action, the MBA requires that a Michigan corporation indemnify the
person against expenses incurred in the action.
The MBA also empowers Michigan corporations to provide similar indemnity
against amounts paid in settlement and expenses actually and reasonably incurred
by such a person in actions or suits by or in the right of the corporation
except in respect of any claim, issue or matter as to which such person is
adjudged to be liable to the corporation, unless and only to the extent that a
court determines that, despite the adjudication of the liability but in view of
all circumstances of the case, such person is fairly and reasonably entitled to
indemnity.
The Company's bylaws generally require the Company to indemnify its
directors and officers to the fullest extent permissible under Michigan law,
require the advancement and reimbursement of expenses under certain
circumstances and establish a procedure for determination of when
indemnification is proper.
The MBA permits Michigan corporations to limit the personal liability of
directors for a breach of their fiduciary duty. The Company's Articles of
Incorporation, which limit liability to the maximum extent permitted by law,
provide that a director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of the director's
fiduciary duty. However, the MBA and the Articles of Incorporation do not
eliminate or limit the liability of a director for any of the following: (i) a
breach of the director's duty of loyalty to the Company or its shareholders;
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) declaration of an unlawful
II-1
<PAGE> 60
dividend, stock purchase or redemption; (iv) a transaction from which the
director derives an improper personal benefit; and (v) an act or omission
occurring prior to the date when the provision becomes effective. As a result of
the inclusion of such a provision, shareholders of the Company may be unable to
recover monetary damages against directors for actions taken by them which
constitute negligence or gross negligence or which are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. These provisions, however, do not
affect liability under the Securities Act of 1933.
Under an insurance policy maintained by the Company, the directors and
officers of the Company are insured, within the limits and subject to the
limitations of the policy, against certain expenses and liabilities incurred in
connection with the defense of certain claims, actions, suits or proceedings
which may be brought against them by reason of being or having been directors or
officers.
Reference is also made to Section 8 of the Underwriting Agreement with
respect to undertakings to indemnify the Company, its directors and officers and
each person who controls the Company within the meaning of the Securities Act of
1933 against certain civil liabilities, including certain liabilities under the
Securities Act of 1933.
ITEM 16. EXHIBITS
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
incorporated herein by reference.
ITEM 17. UNDERTAKINGS
1. The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
2. The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
on Rule A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared effective
and (ii) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Southfield, State of Michigan on the 19th day of
March, 1997.
THORN APPLE VALLEY, INC.
By: /s/ JOEL DORFMAN
------------------------------------
Joel Dorfman,
Chief Executive Officer and
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities indicated on March 19, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ JOEL DORFMAN Chief Executive Officer, President and
- -------------------------------------------- Director
Joel Dorfman (principal executive officer)
* Executive Vice President Finance and
- -------------------------------------------- Administration and Director (principal
Louis Glazier financial and accounting officer)
* Director
- --------------------------------------------
Henry S Dorfman
Director
- --------------------------------------------
Moniek Milberger
Director
- --------------------------------------------
John C. Canepa
Director
- --------------------------------------------
Burton D. Farbman
* Director
- --------------------------------------------
Seymour Roberts
*By /s/ JOEL DORFMAN Attorney-in-fact
- --------------------------------------------
Joel Dorfman
</TABLE>
II-3
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1* Form of Underwriting Agreement.
4.1 Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1 to the Company's Form S-2
Registration Statement, Registration No. 33-43287).
4.2 Amendment to Restated Articles of Incorporation
(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).
4.3 By-laws of the Company, as amended to date (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).
4.4** Form of Indenture between the Company and State Street Bank
and Trust Company, as Trustee.
5.1** Opinion of Honigman Miller Schwartz and Cohn
10.1 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 (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).
10.2 Loan Agreement, dated as of July 1, 1984, between The Onslow
County Industrial Facilities and Pollution Control Financing
Authority and the Company (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).
10.3 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 (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).
10.4 Security Agreement, dated as of July 1, 1984, between Branch
Banking and Trust Company and the Company (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).
10.5 Guaranty Agreement, dated as of July 1, 1984, from the
Company to Branch Banking and Trust Company (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).
10.6 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 (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).
10.7 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 (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).
10.8 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
(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).
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.9 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 (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).
10.10 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 (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).
10.11 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 (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).
10.12 Supply Agreement, dated May 30, 1995, by and among Wilson
Foods Corporation and Foodbrands America, Inc., Dixie Foods
Company and the Company (incorporated herein by reference to
Exhibit 10.2 to the Company's Report on Form 8-K dated May
30, 1995, as amended by its Form 8-K/A dated May 30, 1995).
10.13 Transition Service Agreement, dated May 30, 1995, by and
between Foodbrands America, Inc. and the Company
(incorporated herein by reference to Exhibit 10.3 to the
Company's Report on Form 8-K dated May 30, 1995, as amended
by its Form 8-K/A dated May 30, 1995).
10.14 Credit Agreement, dated as of May 30, 1995, among
Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A., Old
Kent Bank, National City Bank, Harris Trust and Savings Bank
and the Company (incorporated herein by reference to Exhibit
10(s) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 26, 1995, as amended).
10.15 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 (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).
10.16 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 (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).
10.17 Marketing and Management Agreement dated November 2, 1994 by
and among Michigan Livestock Exchange, Indiana Livestock
Exchange and the Company (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).
10.18 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 (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).
10.19 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
(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, 1996).
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.20 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
(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, 1996).
10.21 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
(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, 1996).
10.22 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 (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, 1996).
10.23 Amendment to Reimbursement Agreement, dated as of September
11, 1996, between the Company and Old Kent Bank
(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, 1996).
10.24 Intercreditor Agreement, dated as of September 11, 1996,
among Cooperatieve Centrale Raiffeisen-Boerenleen Bank B.A.,
New York Branch, as Agent, Seasonal Agent and Collateral
Agent, and the lenders party hereto, as acknowledged and
agreed to by the Company and its subsidiaries (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, 1996).
10.25 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/or Credit Agent
(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, 1996).
23.1** Consent of Coopers & Lybrand LLP.
23.2 Consent of Honigman Miller Schwartz and Cohn (contained in
their opinion cited as Exhibit 5.1).
24 Power of Attorney (See page II-3).
25** Statement of Eligibility and Qualification on Form T-1.
</TABLE>
- -------------------------
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 4.4
================================================================================
INDENTURE
between
THORN APPLE VALLEY, INC.
and
________________________, Trustee
Dated as of March __, 1997
$17,250,000
[_____%] Convertible Subordinated Debentures
Due April 1, 2007
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture
- ----------- ---------
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.08;9.101 2.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.06;12.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.05;11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.06
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N. A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.07
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
N.A. means not applicable
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.03 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2
THE SECURITIES
SECTION 2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.02 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.03 Registrar; Paying Agent and Conversion Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.04 Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.05 Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.07 Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.08 Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.09 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.10 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.11 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3
REDEMPTION
SECTION 3.01 Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.02 Selection of Securities to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.06 Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4
CONVERSION OF SECURITIES
SECTION 4.01 Right to Convert; Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.02 Issuance of Shares on Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.03 No Adjustment for Interest or Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.04 Antidilution Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.05 No Fractional Shares to be Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.06 Effect of Consolidation, Merger, Conveyance or Transfer . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.07 Notice to Holders Prior to Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.08 Company to Reserve Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.09 Compliance with Governmental Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.10 Taxes on Shares Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.11 Responsibility of Trustee for Conversion Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
ii
<PAGE> 4
ARTICLE 5
SUBORDINATION
<TABLE>
<S> <C> <C>
SECTION 5.01 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.02 No Payment of Securities if Senior Indebtedness in Default . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 5.03 Distribution upon Acceleration of Securities; Dissolution and Reorganization;
Subrogation of' Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.04 Reliance by Senior Indebtedness on Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 5.05 Other Provisions Subject Hereto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 6
COVENANTS
SECTION 6.01 Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.02 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.03 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.04 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.05 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.06 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.07 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.08 Purchase of Securities Upon Repurchase Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 7
SUCCESSOR CORPORATION
SECTION 7.01 When Company May Merge, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 8
DEFAULTS AND REMEDIES
SECTION 8.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 8.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.05 Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.07 Rights of Holders to Receive Payment and to Convert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.09 Trustee May File Proof of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 9
TRUSTEE
SECTION 9.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 9.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.03 Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 9.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.09 Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.11 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 10
DISCHARGE OF INDENTURE
SECTION 10.01 Termination of Company's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 10.02 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 10.03 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.01 Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 11.02 With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 11.03 Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 11.04 Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 11.05 Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 12
MISCELLANEOUS
SECTION 12.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 12.03 Communication by Holder with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 12.04 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 12.05 Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 12.06 When Treasury Securities Disregarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 12.07 Rules by Trustee, Paying Agent, Conversion Agent, Registrar . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 12.08 Legal Holiday . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 12.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 12.10 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 12.11 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 12.12 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 12.13 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SIGNATURES 41
EXHIBIT A - FORM OF SECURITY A-1
EXHIBIT B - FORM OF CONVERSION NOTICE B-1
</TABLE>
iv
<PAGE> 6
INDENTURE dated as of April 1, 1997, between THORN APPLE VALLEY, INC.,
a Michigan corporation ("Company"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts banking corporation ("Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's____%
Convertible Subordinated Debentures due April 1, 2007 ("Securities"):
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Bankruptcy Law" shall have the meaning provided in Section 8.01.
"Board of Directors" means the Board of Directors of the Company or
any committee of the Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day" means a day that is not a Legal Holiday.
"Company" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Conversion Agent" shall have the meaning provided in Section 2.03.
"conversion price" shall have the meaning provided in Section 4.01.
"Custodian" shall have the meaning provided in Section 8.01.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Exchange Act" means the federal Securities and Exchange Act of 1934,
as amended.
"Event of Default" shall have the meaning provided in Section 8.01.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time
to time.
<PAGE> 7
"Legal Holiday" shall have the meaning provided in Section 12.08.
"Material Subsidiary" means any wholly-owned subsidiary of the Company
the total tangible assets of which equal or exceed 20% of the consolidated
total tangible assets of the Company and its consolidated subsidiaries.
"Nasdaq Stock Market" means the National Market System of the National
Association of Securities Dealers, Inc., Automated Quotations System.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer or Assistant Secretary of the Company.
See Sections 12.04 and 12.05.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee. See Sections 12.04 and 12.05.
"Paying Agent" shall have the meaning provided in Section 2.03.
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or other agency or political subdivision thereof
"principal" of a debt security means the principal of the security
plus, when appropriate, the premium, if any, on the security.
"Registrar" shall have the meaning provided in Section 2.03.
"Repurchase Event" means any of the following:
(a) such time as a "person" or "group" (within the
meaning of Sections 13(d) or 14(d)(2) of the Exchange Act) other than
any holder on the date hereof of five percent (5%) or more of the
outstanding Common Stock or any group including such holder, becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than fifty percent (50%) of the total outstanding voting
stock of the Company; or
(b) such time as a change in the composition of the Board
of Directors of the Company occurs in which those persons who, at the
beginning of the two year period immediately preceding such change in
directors of the Company, constituted the Board of Directors (together
with any other person elected or appointed as a director by a
two-thirds vote of the directors then in office who were directors at
the begining of such two year
2
<PAGE> 8
period) cease for any reason to constitute a majority of the Company's
Board of Directors; or
(c) such time as the Company shall have entered into a
definitive agreement providing for the merger or consolidation of the
Company with or into any other Person, or any sale or transfer of
66-2/3% or more of the Company's assets to another Person, other than
(i) a merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of capital stock of
the Company, (ii) a merger that is done solely to change the
jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock, (iii) a consolidation
with or merger of the Company into a wholly-owned subsidiary of the
Company or any sale or transfer by the Company of 66- 2/3% or more of
its assets to one or more of its wholly-owned subsidiaries; provided,
in any such case, that the resulting corporation or such wholly-owned
subsidiary assumes the Company's obligations under the Securities and
provides for appropriate conversion rights, or (iv) any such
transaction where (y) outstanding voting stock of the Company is
reclassified or changed into or exchanged for voting stock of the
surviving corporation and (z) no Person or "group," other than any
holder on the date hereof of five percent (5%) or more of the
outstanding Common Stock or any group including such holder, is or
becomes the "beneficial owner" of more than fifty percent (50%) of the
voting stock of the surviving corporation immediately after such
transaction; or
(d) either (i) the distribution by the Company, directly
or indirectly, of cash, securities or other property in respect of its
capital stock (other than a distribution paid solely in capital stock
or rights to acquired capital stock), or (ii) the purchase or other
acquisition by the Company, directly or indirectly, of any capital
stock (other than an acquisition of capital stock solely in exchange
for or upon conversion of capital stock or rights to acquire capital
stock), if the sum of the Applicable Equity Percentages (as defined
below) for such distribution or acquisition and all other such
distributions and acquisitions effected after the date of original
issue of the Securities and during the 12-month period ending on the
date on which such distribution or acquisition is effected exceeds
thirty percent (30%).
For purposes of this definition, "Applicable Equity Percentage" means, for any
distribution or acquisition, the percentage obtained by dividing (A) the fair
market value on the Valuation Date (as defined below) of the cash, securities
and other property distributed in respect of, or paid or otherwise exchanged to
acquire, capital stock in such distribution or acquisition, by (B) the fair
market value on the Reference Date (as defined below) of the capital stock
outstanding on the Reference Date; and "Valuation Date" means (A) for any
distribution, the record date therefor or (B) for any acquisition, the date
thereof; "Reference Date" means (A) for any distribution, the day before the
earlier of the record date for such distribution or the first date on which the
capital stock trades without the right to receive such distribution or (B) for
any acquisition, the day before the date of such acquisition.
3
<PAGE> 9
"Responsible Officer" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Sale Event" means either of the following:
(a) such time as a "person" or "group" (within the
meaning of Sections 13(d) or 14(d)(2) of the Exchange Act) other than
any holder on the date hereof of five percent (5%) or more of the
outstanding Common Stock or any group including such holder, becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than fifty percent (50%) of the total outstanding voting
stock of the Company; or
(b) such time as the Company shall have entered into a
definitive agreement providing for the merger or consolidation of
the Company with or into any other Person, or any sale or transfer of
66-2/3% or more of the Company's assets to another Person, other than
(i) a merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of capital stock of the
Company, (ii) a merger that is done solely to change the jurisdiction
of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely
into shares of Common Stock, (iii) a consolidation with or merger of
the Company into a wholly-owned subsidiary of the Company or any sale
or transfer by the Company of 66- 2/3% or more of its assets to one or
more of its wholly-owned subsidiaries; provided, in any such case,
that the resulting corporation or such wholly-owned subsidiary assumes
the Company's obligations under the Securities and provides for
appropriate conversion rights, or (iv) any such transaction where (y)
outstanding voting stock of the Company is reclassified or changed
into or exchanged for voting stock of the surviving corporation and
(z) no Person or "group," other than any holder on the date hereof of
five percent (5%) or more of the outstanding Common Stock or any group
including such holder, is or becomes the "beneficial owner" of more
than fifty percent (50%) of the voting stock of the surviving
corporation immediately after such transaction.
"SEC" means the Securities and Exchange Commission.
"Securities" means the securities as amended or supplemented from time
to time that are authenticated and issued under this Indenture.
"Senior Indebtedness" shall have the meaning provided in Section 5.01.
"Shares" means the shares of common stock, par value $0.10 per share,
of the Company, as the same existed on the date of execution of this Indenture.
"Subsidiary" means (i) any corporation of which at least a majority in
interest of the outstanding stock having by the terms thereof voting power
under ordinary circumstances to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any
4
<PAGE> 10
other class or classes of such corporation shall have or might have voting power
by reason of the happening of any contingency, is at the time, directly
or indirectly, owned or controlled by the Company, or by one or more other
corporations a majority in interest of such stock of which is similarly owned or
controlled, or by the Company and one or more other corporations a majority in
interest of such stock of which is similarly owned or controlled and (ii) any
person (other than a corporation) in which the Company or any Subsidiary,
directly or indirectly, has at least a 50% ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code, Sections
77aaa-77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
SECTION 1.02 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meaning:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder or Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the indenture securities" means the Company
All other TIA terms used in this Indenture. that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them.
SECTION 1.03 Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it,
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and the plural
include the singular.
5
<PAGE> 11
ARTICLE 2
THE SECURITIES
SECTION 2.01 Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A.
The Securities may have notations, legends or endorsements required by law,
stock exchange rule or usage. The Company shall approve the form of the
Securities and any notation, legend or endorsement on them. Each Security
shall be dated the date of its authentication.
SECTION 2.02 Execution and Authentication. Two Officers shall
sign the Securities for the Company by facsimile signature. The Company's seal
shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until the Trustee manually signs the
certificate of authentication on the Security. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of $17,250,000 upon a written order of the Company
signed by two Officers or by an Officer and an Assistant Treasurer of the
Company. The aggregate principal amount of Securities outstanding at any time
may not exceed $17,250,000, except as provided in Section 2.07.
SECTION 2.03 Registrar; Paying Agent and Conversion Agent. The
Company shall maintain an office or agency where Securities may be presented
for registration of transfer or for exchange ("Registrar"), an office or agency
where Securities may be presented for payment ("Paying Agent") and an office or
agency where Securities may be surrendered for conversion ("Conversion Agent").
The Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may have one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents. The
term "Paying Agent" includes any additional paying agent and the term
"Conversion Agent" includes any additional conversion agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent, Conversion Agent or co-registrar not a party to this
Indenture. The agreement shall implement the provisions of this Indenture that
relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar,
Paying Agent or Conversion Agent, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar, Paying Agent
and Conversion Agent.
SECTION 2.04 Paying Agent to Hold Money in Trust. Each Paying
Agent shall hold in trust for the benefit of Securityholders or the Trustee all
money held by the Paying Agent for the
6
<PAGE> 12
payment of principal or interest on the Securities, and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money and
hold it as a separate trust fund. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee. Upon doing so the Paying
Agent shall have no further liability for the money.
SECTION 2.05 Securityholder Lists. The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee on or before each
semiannual interest payment date and at such other times as the Trustee may
request in writing a list, in such form and as of such date as the Trustee may
reasonably require, of the names and addresses of Securityholders.
SECTION 2.06 Transfer and Exchange. Where a Security is presented
to the Registrar or a co-registrar with a request to register the transfer, the
Registrar shall register the transfer as requested if the Security is duly
endorsed or is accompanied by a written instrument of transfer in form
satisfactory to the Registrar, duly executed by the Holder thereof or his
attorneys duly authorized in writing. Where Securities are presented to the
Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit transfers
and exchanges, the Trustee shall authenticate Securities at the Registrar's
request. The Securities may be transferred or exchanged without charge, however
the Company may require payment of a sum sufficient to pay any taxes or
governmental charges assessed with respect to a transfer or exchange of the
Securities.
SECTION 2.07 Replacement Securities. If the Holder of a Security
claims that the Security has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Security if
the Holder of such Security furnishes to the Trustee evidence reasonably accept
able to it of the ownership and destruction, loss or theft of such Security. An
indemnity bond must be sufficient in the judgment of the Company and the Trustee
to protect the Company, the Trustee, the Paying Agent, the Conversion Agent, the
Registrar or any co-registrar from any loss which any of them may suffer if a
Security is replaced. Each of Company and the Trustee may charge for its
expenses in replacing a Security.
SECTION 2.08 Outstanding Securities. Securities outstanding at
any time are all Securities authenticated by the Trustee except for those
canceled by it and those described in this Section. A Security does not cease
to be outstanding because the Company or one of its affiliates holds the
Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent holds on a redemption date or maturity date money
sufficient to pay Securities payable on that date, then on and after that date
such Securities cease to be outstanding and interest on them ceases to accrue.
7
<PAGE> 13
SECTION 2.09 Temporary Securities. Until definitive Securities
are ready for delivery, the Company may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have variations that the Company
considers appropriate for temporary Securities. Without unreasonable delay,
the Company shall prepare, and the Trustee shall authenticate, definitive
Securities in exchange for temporary Securities.
SECTION 2.10 Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar, the Paying Agent
and the Conversion Agent shall forward to the Trustee any Securities
surrendered to them for transfer, exchange, payment or conversion. The Trustee
and no one else shall cancel and destroy all Securities surrendered for
transfer, exchange, payment, conversion or cancellation. The Company may not
issue new Securities to replace Securities it has paid or delivered to the
Trustee for cancellation.
SECTION 2.11 Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, it shall pay the defaulted
interest to the persons who are Securityholders on a subsequent special record
date. The Company shall fix the special record date and payment date. At
least 15 days before the special record date, the Company shall mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid. The Company may pay
defaulted interest in any other lawful manner.
ARTICLE 3
REDEMPTION
SECTION 3.01 Notices to Trustee. If the Company wants to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee of the redemption date and the principal amount of Securities to be
redeemed.
If the Company wants to reduce the principal amount of Securities to
be redeemed pursuant to paragraph 6 of the Securities, it shall notify the
Trustee of the amount of the reduction and the basis for it. If the Company
wants to credit against any such redemption Securities it has not previously
delivered to the Trustee for cancellation, it shall deliver the Securities with
the notice.
The Company shall give each notice provided for in this Section at
least 30 days before the redemption date, provided, however, that if the
Company desires the Trustee to mail notice of redemption in accordance with
Section 3.03, it shall give such notice at least 60 days before the redemption
date, or such shorter period as is acceptable to the Trustee.
SECTION 3.02 Selection of Securities to be Redeemed. If less than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed either pro rata or by lot. The Trustee shall make the selection
from Securities outstanding not previously called for redemption. Securities
in denominations of $1,000 may only be redeemed in whole. The Trustee may
select for redemption portions (equal to $1,000 or any integral multiple
thereof) of the principal
8
<PAGE> 14
of Securities that have denominations larger than $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed
(so far as may be) to be the portion selected for redemption. Securities which
have been converted during a selection of Securities to be redeemed shall be
treated as outstanding for the purpose of such selection.
SECTION 3.03 Notice of Redemption. At least 30 days but not more
than 60 days before a redemption date, the Company shall mail a notice of
redemption by first-class mail to each Holder of Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price,
(3) the name and address of the Paying Agent;
(4) the conversion price, the date on which the right to convert
the principal of the Securities or the portions thereof to be
redeemed will terminate and the place or places where such
securities may be surrendered for conversion,
(5) in the event that any Security is to be redeemed in part only,
the portion of the principal amount thereof to be redeemed and
that on and after the redemption date, upon surrender of such
Security, a new Security or Securities in principal amount
equal to the unredeemed portion thereof will be issued;
(6) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price; and
(7) that interest on Securities called for redemption ceases to
accrue on and after the redemption date.
At the Company's request, the Trustee shall give the notice of redemption in
the Company's name and at the Company's expense.
SECTION 3.04 Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable
on the redemption date and at the redemption price. Upon surrender to the
Paying Agent, such Securities shall be paid at the redemption price, plus
accrued interest to the redemption date.
SECTION 3.05 Deposit of Redemption Price. On or before 10:00 a.m.,
Eastern Time, on the redemption date, the Company shall deposit with the Paying
Agent money sufficient to pay the redemption price of, and accrued interest on,
all Securities to be redeemed on that date other than any Securities or
portions thereof called for redemption on that date which have been converted
pursuant to Article 4 on or prior to the date of such deposit.
9
<PAGE> 15
SECTION 3.06 Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Trustee shall authenticate for the
Holder a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
ARTICLE 4
CONVERSION OF SECURITIES
SECTION 4.01 Right to Convert; Conversion Price. Subject to and
upon compliance with the provisions of this Article, at the option of a Holder,
any Security in the principal amount of $1,000 or an integral multiple of
$1,000, at any time at or before the close of business on the business day
preceding April 1, 2007, or in case such Security or a portion thereof has
called for redemption prior to April 1, 2007, then until and including the
close of business on the business day preceding the redemption date, may be
converted into duly authorized, validly issued, fully paid and nonassessable
Shares at the initial conversion price of $_____ per Share, or, in case an
adjustment in the conversion price has taken place pursuant to the provisions
of Section 4.04, then at the applicable conversion price as so adjusted, upon
surrender of the Security to be converted at any time during usual business
hours at the office or agency of the Conversion Agent, accompanied by written
notice substantially in the form set forth as Exhibit B. The initial
conversion price specified in this Section 4.01, as adjusted from time to time
pursuant to the provisions of this Article 4, is referred to as the
"conversion price".
SECTION 4.02 Issuance of Shares on Conversion. As promptly as
practicable after the surrender of any Security for conversion, the Company
shall deliver or cause to be delivered, at the office or agency of the
Conversion Agent, to or upon the written order of the Holder of the Security so
surrendered a certificate or certificates representing the number of duly
authorized, validly issued, fully paid and non- assessable Shares into which
such Security may be converted in accordance with the provisions of this
Article. Such conversion shall be deemed to have been made at the time that
such Security has been surrendered for conversion and the notice required by
Section 4.01 has been received by the Company at the office or agency of the
Conversion Agent. The rights of the Holder of such Security, as a Holder,
shall cease at such time and the person or persons entitled to receive Shares
upon conversion of such Security shall be treated for all purposes as having
become the record holder or holders of such Shares at such time and such
conversion shall be at the conversion price in effect at such time. In the
case of any Security which is converted in part only, upon conversion the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without any service charge, a new Security, of any authorized
denomination or denominations requested by the Holder in aggregate principal
amount equal to the unconverted portion of the principal amount of such
Security.
SECTION 4.03 No Adjustment for Interest or Dividends. Subject to
paragraphs 2 and 9 of the Securities and Section 4.04 hereof, no payment or
adjustment shall be made on conversion of any Security for interest accrued
thereon or for dividends on Shares issued upon conversion of Securities.
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<PAGE> 16
SECTION 4.04 Antidilution Adjustments. The conversion price in
effect at any time shall be subject to adjustment as follows:
A. In case the Company shall (i) declare a dividend on
its Shares payable in shares of its capital stock, (ii) subdivide its
outstanding Shares, (iii) combine its outstanding Shares into a
smaller number of shares, or (iv) issue any shares of capital stock by
reclassification of its Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing person), the conversion price in effect at the time of the
record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be proportionately
adjusted so that the Holder of any Security surrendered for conversion
after such time shall be entitled to receive the aggregate number of
Shares or other securities of the Company which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Security been converted immediately prior to
the happening of such event (or the record date therefor). Such
adjustment shall be made successively whenever any event listed above
shall occur.
B. In case the Company shall fix a record date for the
issuance of rights or warrants to the holders of its Shares entitling
them (for a period expiring within 45 days after such record date) to
subscribe for or purchase Shares or securities convertible into Shares
at a price per Share (or having an initial conversion price per share)
less than the current market price per Share (as defined in Paragraph
G below) on such record date, the conversion price shall be adjusted
so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the number of Shares
outstanding on such record date plus the number of additional Shares
which the aggregate offering price of the total number of Shares so
offered (or the aggregate initial conversion price of the convertible
securities so offered) would purchase at such current market price per
Share, and of which the denominator shall be the number of Shares
outstanding on such record date plus the number of Shares offered for
subscription or purchase (or into which the convertible securities so
offered are initially convertible). Such adjustment shall be made
successively whenever such a record date is fixed; and in the event
that such rights or warrants are not so issued, the conversion price
shall again be adjusted to be the conversion price which would then be
in effect if such record date had not been fixed, but such subsequent
adjustment shall not affect the number of Shares issued upon any
conversion prior to the date such adjustment is made.
C. In case the Company shall fix a record date for the
making of a distribution to the holders of its Shares (including any
such distribution made in connection with a consolidation or merger in
which the Company is the continuing person) of evidences of its
indebtedness or assets (other than cash dividends out of retained
earnings) or subscription rights or warrants (excluding those referred
to in Paragraph B above), then in each such case the conversion price
in effect after such record date shall be determined by multiplying
the conversion price in effect immediately prior to such record date
by a fraction, of which the
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numerator shall be the current market price per Share (as defined in
Paragraph G below) as of such record date less the fair market value
as of such record date (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board resolution
filed with the Trustee and each Conversion Agent) of the portion
applicable to one Share of the assets or evidences of indebtedness or
subscription rights or warrants so to be distributed, and of which the
denominator shall be such current market price per Share. Such
adjustment shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not made, the
conversion price shall again be adjusted to be the conversion price
which would be in effect if such record date had not been fixed; but
such subsequent adjustment shall not affect the number of Shares
issued upon any conversion prior to the date such adjustment is made.
D. In case the Company shall issue Shares for a
consideration per share less than the current market price per Share
(as defined in Paragraph G below) on the date the Company fixes the
offering price for such additional Shares (excluding Shares issued (i)
in any of the transactions described in Paragraph A above,
(ii) upon conversion of Securities, or upon conversion or exchange of
other securities issued after the date hereof, convertible into or
exchangeable for Shares, (iii) upon exercise of options or rights
previously granted or granted hereafter pursuant to employee benefit
or stock option plans in effect at the effective date of this
Indenture or pursuant to employee benefit or stock option plans
hereafter approved by the holders of Shares, (iv) upon exercise of
rights or warrants issued to the holders of Shares, (v) to
shareholders of any corporation which merges into the Company in an
arm's- length transaction between the Company and one or more
unaffiliated third parties in proportion to their stock holdings of
such corporation immediately prior to such merger, upon such merger,
or (vi) in a bona fide public offering pursuant to a firm commitment
underwriting), the conversion price shall be adjusted immediately
after the issuance of such additional Shares so that it shall equal
the price determined by multiplying the conversion price in effect
immediately prior thereto by a fraction, of which the numerator shall
be the total number of shares outstanding immediately prior to the
issuance of such additional shares plus the number of shares which the
aggregate consideration received (determined as provided in Paragraph
F below) for the issuance of such additional Shares would purchase at
such current market price per Share, and of which the denominator
shall be the number of Shares outstanding immediately after the
issuance of such additional Shares. Such adjustment shall be made
successively whenever such an issuance is made.
E. In case the Company shall issue any securities
convertible into or exchangeable for Shares for a consideration per
Share initially deliverable upon conversion or exchange of such
securities (determined as provided in Paragraph F below) less than the
current market price per Share (as defined in Paragraph G below) in
effect immediately prior to the issuance of such securities (excluding
securities issued in transactions described in Paragraphs A, B and C
above) or issued in transactions excluded from the provisions of
Paragraph D above, the conversion price shall be adjusted immediately
thereafter so that it
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<PAGE> 18
shall equal the price determined by multiplying the conversion price
in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of Shares outstanding immediately prior
to the issuance of such securities plus the number of Shares which the
aggregate consideration received (determined as provided in Paragraph
F below) from the issuance of such securities would purchase at such
current market price per Share, and of which the denominator shall be
the number of Shares outstanding immediately prior to such issuance
plus the maximum number of Shares deliverable upon conversion of or in
exchange for such securities at the initial conversion or exchange
price or rate. Such adjustment shall be made successively whenever
such an issuance is made.
F. For purposes of any computation respecting
consideration received pursuant to Paragraphs D and E above, the
following shall apply:
(i) in the case of the issuance of Shares for
cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(ii) in the case of the issuance of Shares for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board
of Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive
and described in a Board Resolution; and
(iii) in the case of the issuance of securities
convertible into or exchangeable for Shares, the aggregate
consideration received from the issuance of such Securities
shall be deemed to be the consideration received by the
Company for the issuance of such securities plus the
additional minimum consideration, if any, to be received by
the Company upon conversion or exchange thereof (the
consideration in each case to be determined in the same manner
as provided in clauses (i) and (ii) of this Paragraph F).
G. For the purposes of any computation under Paragraphs
B, C, D and E above and under Section 4.05, the current market price
per Share on any record date shall be deemed to be the average of the
daily closing prices for 20 consecutive Business Days commencing on
the 30th Business Day before such date. The closing price for each
day shall be the last sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the New York Stock Exchange, or,
if the Shares are not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Shares are
listed or admitted to trading, or if the Shares are not listed or
admitted to trading on any national securities exchange, the average
of the closing bid and asked prices of the Shares on Nasdaq Stock
Market or any comparable system, or if the Shares are not listed on
Nasdaq Stock Market or a comparable
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system, the closing bid and asked prices as furnished by any member of
the National Association of Securities Dealers, Inc., selected from
time to time by the Company for that purpose.
H. No adjustment in the conversion price shall be
required unless such adjustment would require an increase or decrease
of at least twenty-five cents ($0.25) in such price; provided,
however, that any adjustments which by reason of this Paragraph H are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
Article 4 shall be made to the nearest cent or to the nearest
one-thousandth of a Share, as the case may be. Anything in this
Section to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Conversion Price, in addition to those
required by this Section, as it in its discretion shall determine to
be advisable in order that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities, or a
distribution of securities convertible into or exchangeable for stock
hereafter made by the Company to its shareholders shall not be
taxable.
I. Whenever the conversion price is adjusted, as herein
provided, the Company shall promptly file with the Trustee and with
the Conversion Agent a certificate of a firm of independent public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) setting forth the conversion
price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment and a computation thereof. Such
certificate shall be conclusive evidence of the correctness of such
adjustment. Neither the Trustee nor any Conversion Agent shall be
under any duty or responsibility with respect to any such certificate
or any facts set forth therein except to exhibit said certificate from
time to time to any Holder desiring to inspect the same upon
reasonable prior notice. The Company shall promptly cause a notice
setting forth the adjusted conversion price to be mailed to the
Holders, at their last addresses appearing in the register of
Securities.
J. In the event that at any time, as a result of an
adjustment made pursuant to Paragraph A above, the Holder of any
Security thereafter surrendered for conversion shall become entitled
to receive any shares of the Company other than Shares, thereafter the
number of such other shares so receivable upon conversion of any
Security shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions
with respect to the Shares contained in Paragraphs A to I, inclusive,
above, and the provisions of Section 4.02 and 4.05 to 4.10, inclusive,
with respect to the Shares shall apply on like terms to any such other
shares.
SECTION 4.05 No Fractional Shares to be Issued. No fractional
Shares shall be issued upon conversion of Securities. If more than one
Security shall be surrendered for conversion at one time by the same Holder,
the number of full Shares which shall be issuable upon conversion thereof shall
be computed on the basis of the aggregate principal amount of the Securities
(or specified portions thereof to the extent permitted hereby) so surrendered.
In lieu of issuing any
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fractional Share, the Company shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the current
market price of a Share (determined as provided in Paragraph G of Section 4.04)
on the day of conversion.
SECTION 4.06 Effect of Consolidation, Merger, Conveyance or
Transfer. In case of any reclassification (excluding those referred to in
Paragraph A of Section 4.04), in case of any consolidation of the Company with,
or merger of the Company into, any other person (other than a consolidation or
merger in which the Company is the continuing person), or in case of any
conveyance or transfer of the property and assets of the Company substantially
as an entirety, the person formed by such reclassification or consolidation or
into which the Company shall have been merged or the person which shall have
acquired by conveyance or transfer such property and assets, as the case may
be, shall execute and deliver to the Trustee a supplemental indenture providing
that the Holder of each Security then outstanding shall have, in lieu of the
right to convert such Security into Shares, the right thereafter to convert
such Security into the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, consolidation, merger,
conveyance or transfer by a holder of the number and kind of Shares into which
such Security might have been converted immediately prior to such
reclassification, consolidation, merger, conveyance or transfer. Such
supplemental indenture shall conform to the provisions of the TIA as then in
effect and shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article. Neither
the Trustee nor any Conversion Agent shall be under any responsibility to
determine the correctness of any provision contained in any such supplemental
indenture relating either to the kind or amount of shares of stock or other
securities or property receivable by Holders upon the conversion of their
Securities after any such reclassification, consolidation, merger, conveyance,
or transfer, or to any adjustment to be made with respect thereto and, subject
to the provisions of Section 9.01, may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, an
Opinion of Counsel with respect thereto. The above provisions of this Section
shall similarly apply to successive reclassifications, consolidations, mergers,
conveyances or transfers.
SECTION 4.07 Notice to Holders Prior to Certain Actions. In case:
(a) the Company shall authorize the issuance to all
holders of Shares of rights or warrants to subscribe for or purchase
Shares or securities convertible into Shares or of any other
subscription rights or warrants; or
(b) the Company shall authorize the distribution to all
holders of Shares of evidences of its indebtedness or assets (other
than cash dividends out of earned surplus); or
(c) of any consolidation or merger to which the Company
is a party and for which approval of any shareholders of the Company
is required, or of the conveyance or transfer of the properties and
assets of the Company substantially as an entirety; or
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(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(e) the Company proposes to take any action (other than
actions of the character described in Paragraph A of Section 4.04)
which would require an adjustment of the conversion price pursuant to
Section 4.04;
then the Company shall cause to be filed with the Trustee and the Conversion
Agent, and shall cause to be mailed to the Holders, at their last addresses
appearing in the register of Securities, at least 20 days (or 10 days in any
case specified in clause (a) or (b) above) prior to the applicable record date
hereinafter specified, a notice stating (i) the date as of which the holders of
Shares of record to be entitled to receive any such rights, warrants or
distribution are expected to be determined, or (ii) the date on which any such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Shares of record shall be entitled to
exchange their Shares for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up. The failure to give the notice
required by this Section or any defect therein shall not affect the legality or
validity of any distribution, right, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any such action.
SECTION 4.08 Company to Reserve Shares. The Company covenants
that it will at all times reserve and keep available out of its authorized
Shares, free from preemptive rights, solely for the purpose of issue upon
conversion of Securities as herein provided, such number of Shares as shall
then be issuable upon the conversion of all outstanding Securities. The
Company covenants that all Shares which shall be so issuable shall, when
issued, be duly and validly issued and fully paid and nonassessable.
The Company covenants that, upon conversion of Securities as herein
provided, there will be credited to the capital account with respect to the
Shares from the consideration for which the Shares issuable upon such
conversion are issued an amount per Share so issued as determined by the Board
of Directors, which amount shall not be less than the amount required by law
and by the Company's articles of incorporation, as amended, as in effect on the
date of such conversion. For the purposes of this covenant the principal
amount of the Securities converted, less the amount of cash paid in lieu of the
issuance of fractional shares on such conversion, shall be deemed to be the
amount of consideration for which the Shares issuable upon such conversion are
issued.
SECTION 4.09 Compliance with Governmental Requirements. The
Company covenants that if any Shares required to be reserved for purposes of
conversion of Securities hereunder require registration with or approval of any
governmental authority under any federal or state law, or any national
securities exchange, before such Shares may be issued upon conversion, the
Company will in good faith and as expeditiously as possible endeavor to cause
such Shares to be duly registered or approved, as the case may be.
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SECTION 4.10 Taxes on Shares Issued. The issuance of certificates
for Shares upon the conversion of Securities shall be made without charge to
the converting Holders for any tax in respect of the issuance of such
certificates, and such certificates shall be issued in the respective names of,
or in such names as may be directed by, the Holders of the Securities
converted; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificate in a name other than that of the Holder of
the Security converted, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
SECTION 4.11 Responsibility of Trustee for Conversion Provisions.
The Trustee and any Conversion Agent shall not at any time be under any duty or
responsibility to any Holder to determine whether any facts exist which may
require any adjustment of the conversion price, or with respect to the nature
or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed,
in making the same. Neither the Trustee nor any Conversion Agent shall be
accountable with respect to the validity or value (or the kind or amount) of
any Shares, or of any other securities or property, which may at any time be
issued or delivered upon the conversion of any Security; and it or they do not
make any representation with respect thereto. Neither the Trustee nor any
Conversion Agent shall be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any Shares or certificates
therefor or other securities or property upon the surrender of any Security for
the purpose of conversion, and the Trustee, subject to the provisions of
Section 9.01, and any Conversion Agent shall not be responsible for any failure
of the Company to comply with any of the covenants of the Company contained in
this Article.
ARTICLE 5
SUBORDINATION
SECTION 5.01 Agreement to Subordinate. The Company, for itself
and its successors, and each Holder, by his acceptance of Securities, agrees
that the payment of the principal of, interest on or any other amounts due on
the Securities is subordinated in right of payment, to the extent and in the
manner stated in this Article 5, to the prior payment in full of all Senior
Indebtedness. Each Holder by his acceptance of the Securities authorizes and
directs the Trustee in his behalf to take such action as may be necessary or
appropriate to effectuate, as between the holders of Senior Indebtedness and
such Holder, the subordination provided in this Article 5 and appoints the
Trustee his attorney-in-fact for such purpose. If the Trustee does not file a
proper claim or proof of debt in the form required in any voluntary or
involuntary dissolution, winding up, liquidation, reorganization, arrangement
or similar proceedings relating to the Company prior to 30 days before the
expiration of time to file such claim or claims, then any holder or holders of
Senior Indebtedness or their representative or representatives are hereby
authorized to and have the right to file an appropriate claim for and on behalf
of the Securityholders.
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For purposes of this Article 5, "Senior Indebtedness" means the
principal of, interest on and other amounts due on any indebtedness (other than
the Securities), whether outstanding on the date of this Indenture or
thereafter created, incurred, assumed or guaranteed by the Company for money
borrowed from others (including, for this purpose, all obligations incurred
under capitalized leases or purchase money mortgages) or in connection with the
acquisition by it or a Subsidiary of any other business or entity, and, in each
case, all renewals, extensions and refundings thereof, unless the terms of the
instrument creating or such expressly provide that such indebtedness is not
superior in right of payment to the payment of principal of and interest on the
Securities. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness shall not include (a) indebtedness of or amounts owed by the
Company for compensation to employees, or for goods or materials purchased in
the ordinary course of business, or for services, and (b) indebtedness of the
Company to a Subsidiary for money borrowed or advances from such Subsidiary.
For purposes hereof, a "capitalized lease" shall be deemed to mean a lease of
real or personal property which, in accordance with generally accepted
accounting principles, has been capitalized.
SECTION 5.02 No Payment of Securities if Senior Indebtedness in
Default. Anything in this Indenture to the contrary notwithstanding, no
payment on account of principal of, mandatory redemption of, interest on or
other amounts due on the Securities, and no redemption, purchase, or other
acquisition of the Securities, shall be made by or on behalf of the Company --
(i) unless full payment of amounts when due for
principal, sinking funds and interest and of all other amounts then
due on all Senior Indebtedness has been made or duly provided for
pursuant to the terms of the instrument governing such Senior
Indebtedness,
(ii) if, at the time of such payment, redemption, purchase
or other acquisition, or immediately after giving effect thereto,
there shall exist under any Senior Indebtedness, or any agreement
pursuant to which any such Senior Indebtedness is issued, any default,
which default shall not have been cured or waived and which default
shall have resulted in the full amount of such Senior Indebtedness
being declared due and payable, or
(iii) if, at the time of such payment, redemption, purchase
or other acquisition, or immediately after giving effect thereto,
there shall exist under any Senior Indebtedness, or any agreement
pursuant to which such Senior Indebtedness is issued, any default,
which default shall not have been cured or waived, permitting the
holders thereof to declare the full amount of such Senior Indebtedness
due and payable, upon written notice of such default given to the
Company and the Trustee by the holder or holders of such Senior
Indebtedness or their representative or representatives, provided,
however, that if such Senior Indebtedness shall not have been declared
due and payable within a period of 270 days after the date of the
written notice hereinabove referred to, payments on account of
principal of, mandatory redemption of or interest on the Securities
(other than amounts due and payable by reason of the acceleration of
the maturity of the Securities) and redemptions, purchases or other
acquisitions may be made by or on behalf of the Company, and provided,
further, that the failure to give notice as herein provided shall not
constitute a waiver of the rights of such
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<PAGE> 24
holder or holders of Senior Indebtedness hereunder and such period of
270 days shall commence upon the giving of such notice.
The provisions of this Section 5.02 shall not prevent a mandatory redemption
payment in respect of Securities made in Securities properly acquired prior to
the happening of such default.
In the event that notwithstanding the provisions of this Section 5.02,
payments are made by or on behalf of the Company in contravention of the
provisions of this Section 5.02, such payments shall be held by the Trustee,
any Paying Agent or the Securityholders, as applicable, in trust for the
benefit of, and shall be paid over to and delivered to, the holders of Senior
Indebtedness or their representative or the trustee under the indenture or
other agreement (if any), pursuant to which any instruments evidencing any
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full in
accordance with the terms of such Senior Indebtedness, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
SECTION 5.03 Distribution upon Acceleration of Securities;
Dissolution and Reorganization; Subrogation of Securities. (a) Upon (i)
any acceleration of the principal amount due on the Securities because of an
Event of Default or (ii) any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or any other dissolution, winding up, liquidation or
reorganization of the Company):
(1) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full in lawful money of the United
States of the principal thereof, the interest thereon and any other
amounts due thereon before the Holders are entitled to receive payment
on account of the principal, interest or any other amounts due on the
Securities;
(2) any payment or distribution of assets of the Company
of any kind or character, whether in cash, property or securities
(other than securities of the Company as reorganized or readjusted or
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this Article 5 with
respect to the Securities, to the payment in full without diminution
or modification by such plan of all Senior Indebtedness) to which the
Holders or the Trustee would be entitled except for the provisions of
this Article 5 shall be paid by the liquidating trustee or agent or
other person making such a payment or distribution, directly to the
holders of Senior Indebtedness (or their representatives) or
trustee(s) acting on their behalf), ratably according to the aggregate
amounts remaining unpaid on account of the principal of and interest
on the Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness; and
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(3) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted or securities
of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in this Article 5 with respect to the
Securities, to the payment in full without diminution or modification
by such plan of Senior Indebtedness) shall be received by the Trustee
or the Holders before all Senior Indebtedness is paid in full, such
payment or distribution shall be held in trust for the benefit of, and
be paid over to, the holders of the Senior Indebtedness remaining
unpaid (or their representatives) or trustee(s) acting on their
behalf), ratably as aforesaid, for application to the payment of such
Senior Indebtedness until all such Senior Indebtedness shall have been
paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness. the Holders
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Indebtedness until the principal of and
interest on the Securities shall be paid in full, and, for purposes of such
subrogation, no such payments or distributions to the holders of Senior
Indebtedness of cash, property or securities which otherwise would have been
payable or distributable to Holders shall, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders, be
deemed to be a payment by the Company to or on account of the Securities.
Nothing contained in this Article 5 or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders, the
obligation of the Company, which is unconditional and absolute, to pay to the
Holders the principal of and interest on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders and creditors of the Company
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holders from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture,
subject to the rights, if any, under this Article 5 of the holders of Senior
Indebtedness in respect of cash, property and securities of the Company
received upon the exercise of any such remedy. Upon distribution of assets of
the Company referred to in this Article 5, the Trustee, subject to the
provisions of Section 9.01, and the Holders shall be entitled to rely upon a
certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, the amount thereof
or payable or distributed thereon and all thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
5. The Trustee, however, shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness. Nothing contained in this Article 5 or
elsewhere in this Indenture, or in any of the Securities, shall prevent the
application by the Trustee of any moneys which were deposited with it
hereunder, prior to its receipt of written notice of facts which would prohibit
such application,
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for the purpose of the payment of or on account of the principal of, or interest
on, the Securities unless, prior to the date on which such application is made
by the Trustee, the Trustee shall be charged with notice under Section
5.03(c) hereof of the facts which would prohibit the making of such application.
(b) The provisions of this Article 5 shall not be applicable to
any cash, properties or securities received by the Trustee or by any other
Holder when received as a holder of Senior Indebtedness and nothing in Section
9.11 or elsewhere in this Indenture shall deprive the Trustee or such Holder of
any of its rights as such holder.
(c) The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment of
moneys to or by the Trustee in respect of the Securities pursuant to the
provisions of this Article 5. The Trustee, subject to the provisions of Section
9.01, shall be entitled to assume that no such fact exists unless the Company
or any holder of Senior Indebtedness or any trustee therefor has given such
notice to the Trustee. Notwithstanding the provisions of this Article 5 or any
other provisions of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any fact which would prohibit the making of any
payment of moneys to or by the Trustee in respect of the Securities pursuant to
the provisions in this Article 5, unless and until the Trustee shall have
received written notice thereof from the Company or any holder or holders of
Senior Indebtedness or from any trustee therefor; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Section
9.01, shall be entitled in all respects conclusively to assume that no such
fact exists; provided that if on or before the Business Day immediately
preceding the date upon which by the terms hereof any such moneys may become
payable for any purpose (including, without limitation, the principal of or
interest on any Security, and any amounts immediately due and payable upon the
execution of any instrument acknowledging satisfaction and discharge of this
Indenture, as provided in Article 10 hereof), the Trustee shall not have
received with respect to such moneys the notice provided for in this Section
5.03(c), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such moneys and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such
prior date.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a person representing himself to be a holder of Senior
Indebtedness (or a trustee on behalf of such holder) to establish that such
notice has been given by a holder of Senior Indebtedness (or a trustee on
behalf of any such holder or holders). In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any person as a holder of Senior Indebtedness to participate in any
payment or distribution pursuant to this Article 5, the Trustee may request
such person to furnish evidence to the reasonable satisfaction of the Trustee
as to the amount of Senior Indebtedness held by such person, the extent to
which such person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such person under this Article
5, and, if such evidence is not furnished, the Trustee may defer any payment to
such person pending judicial determination as to the right of such person to
receive such payment; nor shall the Trustee
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be charged with knowledge of the curing or waiving of any default of the
character specified in Section 5.02 or that any event or any condition
preventing any payment in respect of the Securities shall have ceased to exist,
unless and until the Trustee shall have received an Officers' Certificate to
such effect.
(d) The provisions of this Section 5.03 applicable to the Trustee
shall also apply to any Paying Agent for the Company.
SECTION 5.04 Reliance by Senior Indebtedness on Subordination
Provisions. Each Holder of any Security by his acceptance thereof acknowledges
and agrees that the foregoing subordination provisions are, and are intended to
be, an inducement and a consideration to each holder of any Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before
or after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness, and such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness. Notice of any default in the payment of any Senior
Indebtedness, except as expressly stated in this Article 5, and notice of
acceptance of the provisions hereof are hereby expressly waived. Except as
otherwise expressly provided herein, no waiver, forbearance or release by any
holder of Senior Indebtedness under such Senior Indebtedness or under this
Article 5 shall constitute a release of any of the obligations or liabilities
of the Trustee or Holders of the Securities provided in this Article 5. Except
as otherwise expressly provided herein, no right of any present or future
holder of Senior Indebtedness to enforce the subordination provisions hereof
shall at any time or in any way be prejudiced or impaired by any act or failure
to act on the part of the Company or any such holder or by any noncompliance by
the Company with the terms, provisions or covenants of this Indenture,
regardless of any knowledge thereof which such holder may have or otherwise be
charged with.
SECTION 5.05 Other Provisions Subject Hereto. Except as expressly
stated in this Article 5, notwithstanding anything contained in this Indenture
to the contrary, all the provisions of this Indenture and the Securities are
subject to the provisions of this Article 5.
ARTICLE 6
COVENANTS
SECTION 6.01 Payment of Securities. The Company shall pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities. An installment of principal or interest shall be
considered paid on the date it is due if the Trustee or Paying Agent holds on
that date money designated for and sufficient to pay the installment. The
Company shall pay interest on overdue principal at the rate borne by the
Securities; it shall pay interest on overdue installments of interest at the
same rate to the extent lawful.
SECTION 6.02 Corporate Existence. Subject to Article 7, the
Company will do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate
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existence and that of each Subsidiary and the rights (charter and statutory)
and franchises of the Company and its Subsidiaries, provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors, or the board of directors of the Subsidiary concerned,
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company or any Subsidiary and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 6.03 Payment of Taxes and Other Claims. The Company will
pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (1) all taxes, assessments and governmental charges levied
or imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
material property of the Company or any Subsidiary; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 6.04 Maintenance of Properties. The Company will cause
all material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary,
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the operation or
maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal is, in the judgment of the Company or the Subsidiary
concerned, desirable in the conduct of the business of the Company or any
Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 6.05 Compliance Certificate. The Company shall deliver to
the Trustee within 90 days after the end of each fiscal year of the Company an
Officers' Certificate stating whether or not the signers know of any default by
the Company in performing its covenants in Sections 6.02, 6.03, and 6.04. If
they do know of such a default, the certificate shall describe the default.
The certificate need not comply with Section 12.05.
SECTION 6.06 SEC Reports. The Company shall file with the
Trustee, within 15 days after it files them with the SEC, copies of the
quarterly and annual reports and of the information, documents, and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) which the Company is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company also
shall comply with the other provisions of TIA Section 314(a). So long as the
Securities remain outstanding, the Company shall cause its annual reports to
shareholders and any other financial reports furnished by it to shareholders
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generally, to be mailed to the Holders at their addresses appearing in the
register of Securities maintained by the Registrar. With respect to such
reports, the Trustee's sole responsibility prior to the occurrence and
continuance of an Event of Default shall be to monitor the Company's timely
delivery of such reports, and not to monitor or confirm on a continuing basis or
otherwise the Company's compliance with any covenants contained herein.
SECTION 6.07 Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, any
stay or extension law or any usury law or other law, which would prohibit or
forgive the Company from paying all or any portion of the principal of and/or
interest on the Securities as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law,
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution
of every such power as though no such law had been enacted.
SECTION 6.08 Purchase of Securities Upon Repurchase Event.
(a) If a Repurchase Event occurs, the Company shall make an offer
to purchase all outstanding Securities. The Company's offer must remain open
for at least 45 days and not more than 60 days after the date the Repurchase
Event Notice described below is mailed to Holders, or such later date as is
required for the Company to comply with the Exchange Act, and must be made at a
price of 101% of the principal amount of the Securities, plus accrued and
unpaid interest through the date of repurchase, provided the Holders comply
with the requirements of this Section 6.08.
(b) The Company shall give written notice (the "Repurchase Event
Notice") of a Repurchase Event within 30 days after it occurs, together with
its offer to purchase all of the Securities as specified above. The Trustee is
not required to inquire about, or learn of, the occurrence of a Repurchase
Event. The Repurchase Event Notice shall include instructions and materials
necessary or helpful to enable Holders to tender Securities for repurchase, and
shall also include the following:
(1) a description of the Repurchase Event and the date on
which it is deemed to have occurred, together with a brief
description of any material developments in the Company's
business since the date of its latest annual or quarterly
report filed with the Trustee pursuant to Section 6.06 and, if
material, any pro forma financial information;
(2) the date by which a Holder must give notice of his
intention to tender Securities, as provided in paragraph (c)
below;
(3) the repurchase price (101% of par) and the date on
which the Company will pay the repurchase price to a Holder
who tenders Securities pursuant to the Company's offer;
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(4) that any Securities not tendered will continue to
earn interest and be outstanding obligations of the Company;
(5) that Securities accepted by the Company will become
due and payable on the date set by the Company for repurchase
of Securities and will cease to earn interest after that date;
and
(6) any procedures that a Holder must follow to tender
Securities and the procedures for withdrawing a tender of
Securities prior to the date set by the Company for repurchase
of the Securities.
(c) A Holder may tender Securities for repurchase pursuant to this
Section 6.08 by (1) delivering to any Paying Agent, prior to the date set by
the Company for the giving of notice of his intention to tender, written notice
identifying the certificate numbers of those certificates he intends to tender
and stating the principal amount of Securities that the Holder wishes to
tender, which must be $1,000 or an intergral multiple thereof and (2)
delivering, within the time limits specified by the Company in the original
Repurchase Event Notice, the Securities being tendered together with all
required additional information or signature guarantees. If a Holder elects to
tender only a portion of the Securities represented by a particular
certificate, the Company shall execute and the Trustee will authenticate and
deliver to the Holder, without charge to the Holder, one or more new
certificates evidencing the principal amount of the Securities not puchased by
the Company. Any Securities tendered to the Company, or any portions of the
principal amount of a Security represented by a certificate that is not
purchased by the Compay, shall continue to be an outstanding Security and shall
continue to bear interest at its stated rate until it matures.
(d) If a Security is tendered for purchase by a Holder pursuant to
this Section 6.08 and not validly withdrawn by the Holder, the Holder shall be
entitled to receive solely the repurchase price (101% of par, plus accrued
interest), which amount the Company shall pay or cause the Trustee to pay
promptly following the date set by the Company for the redemption of Securities.
On or before 10:00 a.m., Eastern Time on the date fixed for payment, the Company
shall deposit with the Trustee an amount of money sufficient to pay the
principal amount of, and accued but unpaid interest on, the Securities tendered
for purchse on that date. If a Security is tendered but not paid in accordance
with this Section 6.08, the principal amount of such Security shall continue to
bear interest at the rate stated on the Security until the purchase price is
paid in full by the Company.
(f) In making the offer to repurchase Securities required by this
Section 6.08, the Company shall comply with all applicable rules and
regulations, including (but not limited to) Rule 14e-1 under the Exchange Act.
(g) A Holder may withdraw a tender of Securities by notifying the
Paying Agent in writing, by facsimile message or letter, at least three days
prior to the date set by the Company for the repurchase of Securities to occur,
of his request to withdraw the tender of Securities, specifying in such written
notice the certificate number of the Securities to be withdrawn from the
tender, the
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principal amount of Securities being withdrawn and the principal amount of
Securites, if any, that the Holder wishes to have repurchased by the
Company. If a Holder notifies a Paying Agent of his desire to withdraw tendered
Securities from the repurchase, the Paying Agent will promptly return to the
Holder any withdrawn Securities.
ARTICLE 7
SUCCESSOR CORPORATION
SECTION 7.01 When Company May Merge, etc. The Company shall not
consolidate with or merge into any other corporation or transfer its properties
and assets substantially as an entirety to any person, unless:
(1) either the Company shall be the continuing
corporation, or the corporation (if other than the Company) formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company substantially as an entirety are
transferred shall be a corporation organized and existing under the
laws of the United States of America or any state thereof or the
District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the
Company under the Securities and this Indenture;
(2) immediately after giving effect to such transaction,
no Event of Default, and no event which, after notice or lapse of time
or both would become an Event of Default, shall have happened and be
continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture
comply with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.
The successor corporation formed by such consolidation or into which
the Company is merged or to which such transfer is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor corporation had
been named as the Company herein, and thereafter the predecessor corporation
shall be relieved of all obligations and covenants under the Indenture and the
Securities, and in the event of such conveyance or transfer any such
predecessor corporation may be dissolved and liquidated.
ARTICLE 8
DEFAULTS AND REMEDIES
SECTION 8.01 Events of Default. An "Event of Default" occurs if:
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(1) the Company defaults in the payment of interest on
any Security when the same becomes due and payable and the default
continues for a period of 30 days; or
(2) the Company defaults in the payment of the principal
of any Security when the same becomes due and payable at maturity,
upon redemption or otherwise; or
(3) the Company fails to comply with any of its other
agreements in the Securities or this Indenture and the default
continues for the period and after the notice specified below; or
(4) an event or events of default, as defined in any one
or more mortgages, indentures, or instruments under which there may be
issued, or by which there may be secured or evidenced, any
indebtedness of the Company or any Material Subsidiary, whether such
indebtedness now exists or shall hereafter be created, shall happen
and shall result in indebtedness in an aggregate amount of at least
$1,000,000 becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, and such
acceleration shall not have been rescinded or annulled, or such
indebtedness shall not have been discharged within a period of 30 days
after there shall have been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the outstanding
Securities a written notice specifying such event or events of default
and requiring the Company or any Material Subsidiary to cause such
acceleration to be rescinded or annulled or to cause such indebtedness
to be discharged and stating that such notice is a "Notice of Default"
hereunder; or
(5) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of
it or for all or substantially all of its
property, or
(D) makes a general assignment for the benefit of
its creditors; or
(6) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company in an
involuntary case,
(B) appoints a Custodian of the Company or for
all or substantially all of its property, or
(C) orders the liquidation of the Company, and
the order or decree remains unstayed and in
effect for 90 days.
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The term "Bankruptcy Law" means title 11, U.S. Code, or any similar
federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A default under clause (3) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the Securities
notify the Company of the default and the Company does not cure the default
within 60 days after receipt of the notice. The notice must specify the
default, demand that it be remedied and state that the notice is a "Notice of
Default."
SECTION 8.02 Acceleration. If an Event of Default occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least
25% in principal amount of the Securities by notice to the Company and the
Trustee, may declare the principal of and accrued interest on all the
Securities to be due and payable immediately. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may rescind an
acceleration and its consequences if all existing Events of Default have been
cured or waived and if the rescission would not conflict with any judgment or
decree.
SECTION 8.03 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal or interest on the Securities or
to enforce the performance of any provision of the Securities or this
Indenture. The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are
cumulative.
SECTION 8.04 Waiver of Past Defaults. Subject to Section 11.02,
the Holders of a majority in principal amount of the Securities by notice to
the Trustee may waive an existing Default or Event of Default and its
consequences. When a Default or Event of Default is waived, it is cured and
stops continuing.
SECTION 8.05 Control by Majority. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that is unduly
prejudicial to the rights of another Securityholder, or that would involve the
Trustee in personal liability.
SECTION 8.06 Limitation on Suits. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
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(2) the Holders of at least 25% in principal amount of
the Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
and
(4) the Trustee does not comply with the request within
60 days after receipt of the request and the offer of indemnity.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 8.07 Rights of Holders to Receive Payment and to Convert.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Security to receive payment of principal and interest on the Security, on
or after the respective due dates expressed in the Security, to convert such
Security in accordance with Article 4 or to bring suit for the enforcement of
any such payment on or after such respective dates and for the enforcement of
the right to convert, shall not be impaired or affected without the consent of
the Holder.
SECTION 8.08 Collection Suit by Trustee. If an Event of Default
in payment of interest or principal specified in Section 8.01 (1) or (2) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid.
SECTION 8.09 Trustee May File Proof of Claim. The Trustee may
file such proofs of claim and other papers or documents and take other such
actions (including sitting on a committee of creditors) as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property.
SECTION 8.10 Priorities. If the Trustee collects any money
pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee, the Conversion Agent, the Paying Agent or the
Registrar for amounts due under Section 9.07;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest,
respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
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SECTION 8.11 Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the
Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit other
than the Trustee of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard
to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 8.07, or a suit by Holders of more than 10% in
principal amount of the Securities.
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ARTICLE 9
TRUSTEE
SECTION 9.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise its rights and powers and use the same degree of care
and skill in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform, and shall not be liable,
except for the performance of only those duties that
are specifically set forth in this Indenture and no
others.
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph
(b) of this Section.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Responsible Officer was negligent in ascertaining the
pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 8.05.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any
loss, liability or expense (including reasonable attorney's fees).
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Company.
(g) The Trustee shall not be deemed to have notice of any fact or
matter with respect to this Indenture, including (without limitation) the
occurrence of a Default or an Event of Default, unless such fact or matter is
actually known to a Responsible Officer of the Trustee charged with the
responsibility of administering this Indenture or unless the Trustee is
notified of such fact or manner in a writing received by the Trustee and making
specific reference to this Indenture.
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(g) The Trustee shall not be deemed to have notice of any fact or
matter with respect to this Indenture, including (without limitation) the
occurrence of a Default or an Event of Default, unless such fact or matter is
actually known to a Responsible Officer of the Trustee charged with the
responsibility of administering this Indenture or unless the Trustee is notified
of such fact or manner in writing received by the Trustee and making specific
reference to this Indenture.
SECTION 9.02 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or represented by the proper person. The
Trustee need not investigate any fact or matter stated in the document;
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on the Certificate or Opinion;
(c) The Trustee may act through agents and attorneys and shall not
be responsible for the misconduct or negligence of any agent or attorney
appointed with due care;
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers;
(e) The Trustee may consult with counsel and any written advice of
such counsel or Opinion of Counsel shall be full and complete authorization and
protection for any action taken or omitted by the Trustee hereunder in good
faith reliance thereon; and
(f) Prior to the occurrence of an Event of Default and after the
cure or waiver of all Events of Default that may have occurred, the Trustee
shall not be bound to make any investigation into the facts or matters stated in
any document, unless requested to do in writing by the Holders of at least a
majority of the Outstanding Securities; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation are, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expense or liability as a condition to so
proceeding.
SECTION 9.03 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Conversion Agent,
Registrar or co-registrar may do the same with like rights. However, the
Trustee must comply with Sections 9.10 and 9.11.
SECTION 9.04 Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement in the
Securities other than its certificate of authentication.
SECTION 9.05 Notice of Defaults. If a Default occurs and is
continuing and if it is known to a Responsible Officer of the Trustee, the
Trustee shall mail to each Securityholder notice of the Default within 90 days
after it occurs. Except in the case of a Default in payment on any Security,
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice the
interests of Securityholders.
SECTION 9.06 Reports by Trustee to Holders. Within 60 days after
each May 15, beginning with the May 15 following the date of this Indenture,
the Trustee shall mail to each Securityholder a brief report dated as of such
May 15 that complies with TIA Section 313(a). The Trustee also shall comply
with TIA Section 313(b). A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange on which
the Securities are listed.
SECTION 9.07 Compensation and Indemnity. The Company shall pay to
the Trustee, the Conversion Agent, the Paying Agent and the Registrar from
time to time reasonable compensation for their respective services, such
compensation not to be limited by any law regarding compensation of an
express trust. The Company shall reimburse the Trustee, the Conversion
Agent, the Paying Agent and the Registrar upon request for all reasonable
out-of-pocket expenses incurred by them. Such expenses may
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include the reasonable compensation and expenses of the Trustee's agents and
counsel. The Company shall indemnify the Trustee, the Conversion Agent, the
Paying Agent and the Registrar against any loss or liability incurred by any of
them. The Trustee shall notify the Company promptly of any claim for which
any of them may seek indemnity. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel.
The Company need not pay for any settlement made without its consent. The
Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence, bad faith or willful
misconduct.
To secure the Company's payment obligations in this Section, the
Trustee, the Conversion Agent, the Paying Agent and the Registrar shall each
have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that which is held in trust to pay principal
and interest on particular Securities.
SECTION 9.08 Replacement of Trustee. The Trustee may resign by so
notifying the Company. The Holders of a majority in principal amount of the
Securities may remove the Trustee by so notifying the removed Trustee and may
appoint a successor Trustee with the Company's consent. The Company may remove
the Trustee if:
(1) the Trustee fails to comply with Section 9.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property: or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
that, the retiring Trustee shall transfer all property held by it as Trustee to
the successor Trustee, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in principal amount of the Securities may petition
any court of competent Jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 9.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
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SECTION 9.09 Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust assets or business to, another corporation, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
SECTION 9.10 Eligibility; Disqualification. This Indenture shall
always have a Trustee who satisfies the requirements of TIA Section 310(a)(1).
The Trustee shall have a combined capital and surplus of at least $25,000,000
as set forth in its most recent published annual report of condition. The
Trustee shall comply with TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9).
SECTION 9.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 10
DISCHARGE OF INDENTURE
SECTION 10.01 Termination of Company's Obligations. This Indenture
shall cease to be of further effect (except as provided below) and the Trustee,
on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been destroyed, lost
or stolen and which have been replaced or paid as provided in Section
2.07 and (ii) Securities for whose payment money has theretofore been
held in trust and thereafter repaid to the Company, as provided in
Section 10.03) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation (i) have become due and payable, or (ii) will
become due and payable at their date of maturity within six months, or
(iii) are to be called for redemption within six months under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company, and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee in trust for the
purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal and interest to the date of
such deposit (in the case of Securities which have become due and
payable) or to the date of maturity or redemption date. as the case
may be,
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<PAGE> 40
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company, and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to pay principal and interest on the securities
(which shall be absolute and unconditional) and its obligations in paragraph 13
of the Securities and in Sections 2.03, 2.04. 2.05, 2.06, 2.07, 9.07, 9.08 and
Article 4 shall survive. The Trustee shall give notice in the name of and at
the expense of the Company to the Holders of the immediate availability of the
amounts referred to in clause (1) of this Section 10.01.
SECTION 10.02 Application of Trust Money. The Trustee shall hold
in trust money deposited with it pursuant to Section 10.01. It shall apply the
deposited money through the Paying Agent and in accordance with this Indenture
to the payment of principal and interest on the Securities.
SECTION 10.03 Repayment to Company. The Trustee and the Paying
Agent shall promptly pay to the Company upon request any excess money held by
them at any time. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of principal or interest
that remains unclaimed for two years.
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.01 Without Consent of Holders. The Company may amend or
supplement this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article 7;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(4) to make any change that does not materially adversely affect
the right of any Securityholder.
SECTION 11.02 With Consent of Holders. The Company may amend or
supplement this Indenture or the Securities without notice to any
Securityholder but with the written consent of
35
<PAGE> 41
the Holders of at least a majority in principal amount of the Securities. The
Holders of a majority in principal amount of the Securities may waive compliance
by the Company with any provision of this Indenture or the Securities without
notice to any Securityholder. However, without the consent of each
Securityholder affected, an amendment, supplement or waiver, including a waiver
pursuant to Section 8.04, may not:
(1) reduce the amount of Securities whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of interest
on any Security;
(3) reduce the principal of or extend the fixed maturity of any
Security or alter the redemption provisions with respect
thereto;
(4) waive a default in the payment of the principal of or interest
on any Security;
(5) modify the provisions of Article 5 in a manner adverse to the
Holders;
(6) make any Security payable in money other than that stated in
the Security; or
(7) adversely affect the right to convert any Security its
provided in Article 4.
SECTION 11.03 Compliance with TIA. Every amendment to or
supplement of this Indenture or the Securities shall comply with the TIA as
then in effect.
SECTION 11.04 Revocation and Effect of Consents. A consent to an
amendment, supplement or waiver by a Holder of a Security shall bind the Holder
and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security, even if notation
of the consent is not made on any Security. However, any such Holder or
subsequent Holder may revoke the consent as to his Security or portion of a
Security. The Trustee must receive the notice of revocation before the date
the amendment, supplement or waiver becomes effective.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder unless it makes a change described in clause (1),
(2), (3), (4), (5), (6) or (7) of Section 11.02. In that case the amendment,
supplement or waiver shall bind each Holder of a Security who has consented to
it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security.
SECTION 11.05 Notation on or Exchange of Securities. If an
amendment, supplement or waiver changes the terms of a Security, the Trustee
may require the Holder of the Security to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the
Trustee so
36
<PAGE> 42
determine, the Company in exchange for the Security shall issue, and the
Trustee shall authenticate, a new Security that reflects the changed terms.
SECTION 11.06 Trustee to Sign Amendments, etc. The Trustee shall
sign any amendment, supplement or waiver authorized pursuant to this Article if
the amendment, supplement or waiver does not adversely affect the rights of the
Trustee. If it does, the Trustee may but need not sign it. The Company may
not sign an amendment or supplement until the Board of Directors approves it.
In signing any amendment, supplement or waiver, the Trustee shall be entitled
to receive, if requested, an indemnity reasonably satisfactory to it and to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of any amendment, supplement or waiver pursuant to
this Article 11 is authorized or permitted by this Indenture.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01 Trust Indenture Act Controls. If any provision of
this Indenture limits, qualifies, or conflicts with another provision which is
required to be included in this Indenture by the TIA or the TIA as amended
after the date hereof, the required provision shall control.
SECTION 12.02 Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail addressed as follows:
if to the Company:
Thorn Apple Valley, Inc.
26999 Central Park, Suite 300
Southfield, MI 48076
Attention: President
with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, MI 48226
Attention: Donald J. Kunz
if to the Trustee:
___________________ State Street Bank and Trust Company
___________________ 2 International Place, 4th Floor
___________________ Boston, Massachusetts 02110
Attention: Corporate Trust Department
Re: Thorn Apple Valley, Inc.
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
37
<PAGE> 43
Any notice or communication mailed to a Securityholder shall be mailed
to him at his address as it appears on the registration books of the Registrar
and shall be sufficiently given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.03 Communication by Holder with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 12.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been
complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied
with.
SECTION 12.05 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 12.06 When Treasury Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or
38
<PAGE> 44
consent, Securities owned by the Company or by any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company shall be disregarded, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded.
SECTION 12.07 Rules by Trustee, Paying Agent, Conversion Agent,
Registrar. The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Paying Agent, Conversion Agent or Registrar each may make
reasonable rules for its functions.
SECTION 12.08 Legal Holiday. A "Legal Holiday" is a Saturday, a
Sunday, a legal holiday or a day on which banking institutions are not required
to be open in Detroit, Michigan, and in the state in which the corporate trust
office of the Trustee is located. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
SECTION 12.09 Governing Law. The laws of the State of Michigan
shall govern this Indenture and the Securities.
SECTION 12.10 No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 12.11 No Recourse Against Others. All liability described
in paragraph 20 of the Securities of any director, officer, employee or
shareholders, as such, of the Company is waived and released.
SECTION 12.12 Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 12.13 Duplicate Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 45
SIGNATURES:
THORN APPLE VALLEY, INC.
By: _______________________________
Joel Dorfman, President
Attest: __________________________
Ronald D. Risher, Secretary
STATE STREET BANK AND TRUST COMPANY
By: _________________________
Its: _________________________
40
<PAGE> 46
EXHIBIT A
[FRONT OF SECURITY]
___% CONVERTIBLE SUBORDINATED DEBENTURE
DUE APRIL 1, 2007
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
No. __________________
$ ____________________
CUSIP No. ____________
THORN APPLE VALLEY, INC.
promises to pay to __________________________________________________
or registered assigns, the principal sum of _______________________________
Dollars on April 1, 2007,
THORN APPLE VALLEY, INC.
Secretary Chairman
Date: ____________________
Authenticated: _________________
STATE STREET BANK AND TRUST COMPANY
as Trustee
By __________________________
Authorized Signer
A-1
<PAGE> 47
[REVERSE OF SECURITY]
THORN APPLE VALLEY, INC.
____% CONVERTIBLE SUBORDINATED DEBENTURE
DUE APRIL 1, 2007
1. Interest.
Thorn Apple Valley, Inc., a Michigan corporation ("Company"), promises
to pay interest on the principal amount of this Debenture at the rate per annum
shown above. The Company will pay interest semi-annually on April 1, and
October 1 of each year, commencing with October 1, 1997. Interest on the
Debentures will accrue from the most recent date to which interest has been
paid or if no interest has been paid from April 1, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal at the rate borne by
the Debentures; it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
2. Method of Payment.
The Company will pay interest on the Debentures (except defaulted
interest) to the persons who are registered Holders of Debentures at the close
of business on the March 15 or September 15 next preceding the interest payment
date ("Record Date"), even though the Debentures are canceled after the Record
Date and on or before the interest payment date. Holders must surrender
Debentures to a Paying Agent to collect principal payments. The Company will
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, the
Company may pay principal and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address.
3. Paying Agent, Conversion Agent and Registrar.
Initially, State Street Bank and Trust Company ("Trustee") will act as
Paying Agent, Conversion Agent and Registrar. The Company may change any
Paying Agent, Conversion Agent, Registrar or co-registrar without notice. The
Company or any of its Subsidiaries may act as Paying Agent, Conversion Agent,
Registrar or co-registrar.
4, Indenture.
The Company issued the Debentures under an Indenture dated as of April
1, 1997 ("Indenture"), between the Company and the Trustee. The terms of the
Debentures include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, 15 U.S. Code
Sections 77aaa-77bbbb ("Act"), as in effect on the date of the Indenture. The
A-2
<PAGE> 48
Debentures are subject to all such terms, and Debentureholders are referred to
the Indenture and the Act for a statement of them.
5. Optional Redemption.
The Company may redeem any or all Debentures at any time on or after
April 1, 2000, at the following redemption prices (expressed in percentages of
principal amount), if redeemed during the periods indicated below, plus accrued
interest to the redemption date:
Period of Redemption Percentage
-------------------- ----------
April 1, 1997 through March 31, 1998 106%
April 1, 1998 through March 31, 1999 105%
April 1, 1999 through March 31, 2000 104%
April 1, 2000 through March 31, 2001 103%
April 1, 2001 through March 31, 2002 102%
April 1, 2002 through March 31, 2003 101%
April 1, 2003 and thereafter 100%
However, the Debentures may not be redeemed prior to April 1, 2000, except (i)
after the occurrence of a Sale Event (as defined in the Indenture) or (ii) if
the closing price for the Company's common stock, par value $0.10 per share, on
the Nasdaq National Stock Market shall have been equal to or exceeded 140% of
the conversion price then in effect for any 20 trading days within a period of
30 consecutive trading days prior to the date notice of redemption is given to
Holders of the Debentures.
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Debentures to be redeemed
at his registered address. Debentures in denominations larger than $1,000 may
be redeemed in part. On and after the redemption date interest ceases to
accrue on Debentures or portions of them called for redemption.
7. Conversion.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Debenture is entitled, at his option, at any time on or before
the close of business on the business day prior to April 1, 2007, or in case
this Debenture or some portion hereof shall have been called for redemption
prior to such date, then in respect of this Debenture or such portion
hereof until and including, but (unless the Company shall default in payment
due upon the redemption thereof) not after, the close of business on the
redemption date, to convert this Debenture (or in case this Debenture is of a
denomination in excess of $1,000, any portion hereof which is $1.00 or an
integral multiple thereof), into fully paid and nonassessable shares of common
stock, par value $0.10 per share ("Shares"), of the Company at the initial
conversion price of $_____ per Share, subject to such adjustment or
adjustments, if any, of such conversion price and the securities or other
property issuable upon conversion, as may be required by the provisions of the
Indenture, upon surrender of this Debenture, duly endorsed or assigned to the
Company or in blank, to the Company at the office or agency of the Conversion
A-3
<PAGE> 49
Agent, with the Conversion Notice set forth below, or accompanied by a separate
written notice substantially in the form of such Conversion Notice, duly
executed by the Holder and stating that the Holder hereof elects to convert
this Debenture, or if less than the entire principal amount hereof is to be
converted, the portion hereof to be converted, all in accordance with the
provisions of the Indenture. Except as otherwise provided in the Indenture, no
payment or adjustment is to be made on conversion for interest accrued hereon
or for dividends issued on securities issued on conversion. No fractional
Shares will be issued on conversion, but instead of any fractional interest the
Company shall pay a cash adjustment as provided in the Indenture.
8. Subordination.
The Debentures will be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness (as defined in the Indenture) of the
Company
9. Denominations, Transfer, Exchange.
The Debentures are in registered form without coupons in denominations
of $1,000 and integral multiples thereof. A Holder may transfer or exchange
Debentures in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not transfer or exchange any Debentures selected
for redemption. Also, it need not transfer or exchange any Debentures for a
period of 15 days before a selection of Debentures to be redeemed.
10. Persons Deemed Owners.
The registered Holder of a Debenture may be treated as the owner of it
for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent will pay the money back to the
Company at its request. After that, Holders entitled to the money must look to
the Company for payment unless an abandoned property law designates another
person.
12. Discharge Prior to Redemption or Maturity.
The Indenture will be discharged and canceled except for certain
Sections thereof, subject to the terms of the Indenture, upon the payment of
all the Debentures or upon the deposit with the Trustee, within not more than
six months prior to the maturity or redemption of the Debentures, of funds
sufficient for such payment or redemption. In the case of such a deposit,
Holders must look to the deposited money for payment.
A-4
<PAGE> 50
13. Amendment, Supplement, Waiver.
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Debentures, and any past default or compliance with
any provision may be waived with the consent of the Holders of a majority in
principal amount of the Debentures. Without the consent of any Holder, the
Company may amend or supplement the Indenture or the Debentures to cure any
ambiguity, defect or inconsistency or to provide for uncertificated Debentures
in addition to or in place of certificated Debentures or to make any change
that does not materially adversely affect the rights of any Holder.
14. Restrictive Covenants.
The Debentures are general unsecured obligations of the Company
limited to the aggregate principal amount of $17,250,000. The Indenture does
not limit other unsecured debt nor does it limit the payment of dividends on,
or purchases of, capital stock, by the Company. The Company is obligated to
maintain its corporate existence and that of its subsidiaries (subject to
certain exceptions), to pay all lawful taxes and other claims and to maintain
all of its material properties in good condition, repair and working order.
Once a year the Company must report to the Trustee on compliance with such
covenants.
15. Successor Corporation.
When a successor corporation assumes all the obligations of its
predecessor under the Debentures and the Indenture, the predecessor corporation
will be released from those obligations.
16. Defaults and Remedies.
An Event of Default is: default for 30 days in payment of interest on
the Debentures; default in payment of principal on them; failure by the Company
for 60 days after notice to it to comply with any of its other agreements in
the Indenture or the Debentures; acceleration of at least $1,000,000 aggregate
amount of indebtedness of the Company or any Material Subsidiary, unless cured
within 30 days after notice to the Company by the Trustee or Holders of at
least 25% in aggregate principal amount of the Debentures then outstanding; and
certain events of bankruptcy or insolvency. If an Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount
of the Debentures may declare all the Debentures to be due and payable
immediately. Holders may not enforce the Indenture or the Debentures except as
provided in the Indenture. The Trustee may require indemnity reasonably
satisfactory to it before it enforces the Indenture or the Debentures. Subject
to certain limitations, Holders of a majority in principal amount of the
Debentures may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal or interest) if it determines that withholding
notice is in their interests.
A-5
<PAGE> 51
17. Trustee Dealings with Company.
State Street Bank and Trust Company, the Trustee under the Indenture,
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its affiliates, and may
otherwise deal with the Company or its affiliates, as if it were not Trustee.
18. No Recourse Against Others.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Debentures or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Debentureholder by
accepting a Debenture waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Debentures.
19. Authentication.
This Debenture shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Debenture.
20. Abbreviations.
Customary abbreviations may be used in the name of a Debentureholder
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to: Secretary,
Thorn Apple Valley, Inc., 26999 Central Park Boulevard, Suite 300, Southfield,
Michigan 48076.
[FORM OF ASSIGNMENT]
I or we assign and transfer this Debenture to
_______________________________
_______________________________
_______________________________
(Print or type name, address and zip code of assignee)
Social security or other identifying number of assignee: ___________________
A-6
<PAGE> 52
and irrevocably appoint ______________________________ agent to transfer this
Debenture on the books of the Company. The agent may substitute another person
to act for him.
Dated: ________________________ Signed:_____________________________
(Sign exactly as name appears on the
other side of this Debenture)
______________________________
Signature Guaranteed By
A-7
<PAGE> 53
EXHIBIT B
[FORM OF CONVERSION NOTICE]
To Thorn Apple Valley, Inc.:
The undersigned owner of this Debenture hereby irrevocably exercises
the option to convert this Debenture, or portion hereof below designated, into
Shares of Common Stock of Thorn Apple Valley, Inc., in accordance with the
terms of the Indenture referred to in this Debenture, and directs that the
Shares issuable and deliverable upon conversion, together with any check in
payment for fractional Shares and any Debentures representing any unconverted
principal amount hereof, be issued and delivered to the undersigned unless a
different name has been indicated below. If Shares are to be registered in the
name of a person other than the undersigned, the undersigned will pay any
transfer taxes payable with respect thereto.
Dated: _____________________________
Signature: __________________________
Signature Guaranteed By:
___________________________________
Principal Amount to be Converted: ___________________________
(if less than all)
Fill in for registration of Shares and Debentures only if otherwise
than in name and address of registered holder.
___________________________ ___________________________
(Name) (Address)
___________________________ ___________________________
(City and State) (Tax Identification Number)
(Please print name and address including zip code number)
B-1
<PAGE> 1
March 19, 1997
EXHIBIT 5.1
Thorn Apple Valley, Inc.
26999 Central Park Boulevard
Suite 300
Southfield, Michigan 48076
Re: Registration Statement on Form S-2
Ladies and Gentlemen:
We have acted as counsel for Thorn Apple Valley, Inc., a Michigan
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), of a Registration Statement on Form S-2 (the "Registration
Statement") relating to the offering by the Company through Roney & Company,
L.L.C., as representative of the several underwriters, in the manner described
in the Registration Statement, of up to $17,250,000 principal amount of its
Convertible Subordinated Debentures due 2007 (the "Debentures") and an
indeterminate number of shares of the Company's common stock, $0.10 par value
(the "Common Stock"), issuable upon conversion of the Debentures.
In so acting, we have examined and relied upon the originals, or
copies certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is in good standing
under the laws of the State of Michigan.
2. The Debentures to which the Registration Statement relates
will be, when issued in the manner specified in the Registration Statement,
legally issued, valid and binding obligations of the Company.
3. The shares of Common Stock to which the Registration Statement
relates will be, when issued in the manner specified in the Registration
Statement, legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement. We further consent to the reference to our firm under
the heading "Legal Matters" in the
<PAGE> 2
Thorn Apple Valley, Inc.
March 19, 1997
Page 2
Registration Statement. In giving such consent, we do not concede that we are
experts within the meaning of the Act or the rules or regulations thereunder or
that this consent is required by Section 7 of the Act.
Very truly yours,
HONIGMAN MILLER SCHWARTZ AND COHN
DF/DAB/DEB
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form S-2 and incorporation herein by reference to the Annual Report
on Form 10-K, of our reports, dated August 26, 1996, except as to the
information presented as a subsequent event in Note 6, for which the date is
September 12, 1996, on our audits of the consolidated financial statements and
financial statement schedule of Thorn Apple Valley, Inc. and subsidiaries as of
May 31, 1996 and May 26, 1995, and for each of the three years in the period
ended May 31, 1996. We consent to the reference to our firm under the caption
"Experts."
Coopers & Lybrand L.L.P.
Detroit, Michigan
March 19, 1997
<PAGE> 1
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Senior Vice President and Corporate Secretary
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
_____________________
THORN APPLE VALLEY, INC.
(Exact name of obligor as specified in its charter)
MICHIGAN (38-1964066)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26999 CENTRAL PARK BOULEVARD, SUITE 300
SOUTHFIELD, MICHIGAN 48076
(810) 213-1000
(Address of principal executive offices) (Zip Code)
CONVERTIBLE SUBORDINATED DEBENTURES
(Title of indenture securities)
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GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee,
as now in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on file
with the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE
CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED
IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Eastern Edison Company (File No.
33-37823) and is incorporated herein by reference thereto.
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5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a part
hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 13th day of March, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Patrick E. Thebado
----------------------------------
PARTICK E. THEBADO
ASSISTANT VICE PRESIDENT
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EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by THORN APPLE
VALLEY, INC. of its CONVERTIBLE SUBORDINATED DEBENTURES, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Patrick E. Thebado
-------------------------------
PATRICK E. THEBADO
ASSISTANT VICE PRESIDENT
DATED: MARCH 13, 1997
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EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company of
Boston, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business December
31, 1996, published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ......................................... 1,561,409
Interest-bearing balances .................................................................. 7,562,240
Securities .............................................................................................. 9,388,513
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ........................................................ 5,622,962
Loans and lease financing receivables:
Loans and leases, net of unearned income ............ 4,858,187
Allowance for loan and lease losses ................. 72,614
Loans and leases, net of unearned income and allowances .................................... 4,785,573
Assets held in trading accounts ......................................................................... 874,700
Premises and fixed assets ............................................................................... 383,955
Other real estate owned ................................................................................. 870
Investments in unconsolidated subsidiaries .............................................................. 93,621
Customers' liability to this bank on acceptances outstanding ............................................ 35,022
Intangible assets ....................................................................................... 148,190
Other assets............................................................................................. 932,673
-----------
Total assets ............................................................................................ 31,389,728
===========
LIABILITIES
Deposits:
In domestic offices ........................................................................ 8,508,096
Noninterest-bearing .............................. 6,435,131
Interest-bearing ................................. 2,072,965
In foreign offices and Edge subsidiary ..................................................... 11,395,724
Noninterest-bearing .............................. 27,508
Interest-bearing ................................. 11,368,216
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ........................................................ 7,518,222
Demand notes issued to the U.S. Treasury and Trading Liabilities ........................................ 733,935
Other borrowed money .................................................................................... 650,578
Bank's liability on acceptances executed and outstanding ................................................ 35,022
Other liabilities ....................................................................................... 770,029
-----------
Total liabilities ....................................................................................... 29,611,606
-----------
EQUITY CAPITAL
Common stock ............................................................................................ 29,931
Surplus ................................................................................................. 358,146
Undivided profits ....................................................................................... 1,389,720
Cumulative foreign currency translation adjustments .................................................... 325
-----------
Total equity capital .................................................................................... 1,778,122
-----------
Total liabilities and equity capital .................................................................... 31,389,728
===========
</TABLE>
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I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
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