<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<S> <C> <C>
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended May 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-6566
</TABLE>
THORN APPLE VALLEY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-1964066
(State or other jurisdiction (I.R.S Employer Identification No.)
incorporation or organization)
</TABLE>
26999 CENTRAL PARK BOULEVARD, SUITE 300,
SOUTHFIELD, MICHIGAN 48076
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 213-1000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- - ------------------- -----------------------------------------
<S> <C>
NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE PER SHARE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendment to this Form
10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK OF THE REGISTRANT HELD BY
NON-AFFILIATES OF THE REGISTRANT AS OF SEPTEMBER 10, 1998, COMPUTED BY REFERENCE
TO THE NASDAQ NATIONAL MARKET CLOSING PRICE ON SUCH DATE, WAS $25,785,168.
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF
SEPTEMBER 10, 1998 WAS 6,137,423.
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As filed with the Securities and Exchange Commission on September 14, 1998.
<PAGE> 2
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
PART I
ITEM 1. BUSINESS
GENERAL
Thorn Apple Valley, Inc. (sometimes referred to hereinafter collectively
with its subsidiaries as the "Company") is a major producer of processed meat
and poultry products ("Processed Meats"). The Company was originally
incorporated in 1959 as a Michigan corporation. It reincorporated in Delaware in
1971 and reincorporated in Michigan in 1977. The Company engages in the
production and sale of bacon, hot dogs and lunch meats, hams, smoked sausages
and turkey products. The Company markets its products under premium and other
proprietary brand labels including "Thorn Apple Valley(R)", "Colonial(R)", "Corn
King(R)", "Wilson Certified(R)" and "Cavanaugh Lakeview Farms(R)", as well as
under private labels with major supermarket chains and other customers.
Principal customers of the Company include food wholesalers, supermarkets, food
service operations and other manufacturers located throughout the United States
and in selected international markets.
The Company's business strategy is to increase revenue and regain
profitability by (i) increasing the sales of the Company's higher margin premium
brand 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 production facilities, (iii) developing and marketing new
products, including products targeted to health-conscious consumers, and (iv)
increasing overall sales volume through additional marketing strategies with an
emphasis on sales to select international markets, including, for example,
Korea.
DISCONTINUED OPERATIONS
In May 1998, the Company formalized plans to exit its fresh pork business.
The Company closed its fresh pork facility in July 1998. The Company recorded a
significant after tax charge in the fourth quarter of $39.3 million related to
the closing of its fresh pork operations. Included in the gross charge is an
estimated after-tax loss from operations during the phase out period of
approximately $3.25 million. The Consolidated Financial Statements and related
notes for all years presented separately report the discontinued fresh pork
operations. See Note 13 of the Notes to the Consolidated Financial Statements
for additional information related to the discontinuance of the Company's fresh
pork operations.
PRODUCTS, OPERATIONS AND MARKETING
The Company is engaged in a single segment business with one principal
product category, processed meat and poultry products. The following table shows
for the fiscal periods indicated the net sales and approximate pounds of
products shipped for each of the past five years.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales (in dollars).............................. $416.3 $415.4 $623.0 $598.0 $514.4
Products shipped (in lbs.).......................... 351.7 378.2 507.7 452.1 442.7
</TABLE>
Processed Meats manufacturers generally receive higher profit margins on
premium labeled branded items versus non-premium, or private label items. In
recent years, the Company has focused on identifying emerging trends in consumer
preferences and on developing products in response to those trends in an attempt
to be a market leader in emerging market segments that offer opportunities for
increased sales volume and higher profit margins than those associated with more
mature and more competitive market segments. For example, the Company has
developed innovative packaging concepts and products that are leaner and have
lower fat contents (such as the Company's premium deli-style sliced turkey ham,
turkey breast and cooked ham products) to appeal to consumers seeking products
that are more convenient to use and are healthier than
<PAGE> 3
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
existing product alternatives. The Company believes that opportunities exist to
extend its current product lines into related products, thereby leveraging its
current premium brand names. During fiscal 1998, the Company also initiated a
bold new marketing strategy to help increase sales by sponsoring a NASCAR racing
team for a period of three years. The NASCAR sponsorship is a multifaceted
program that provides many tie-in promotional opportunities.
The Company experiences some seasonality in its business. Specifically, the
Company's sales of smoked hams are typically at their highest levels during the
Christmas and Easter holiday seasons as a result of increased consumer demand.
In order to accommodate the increased holiday sales, the Company typically
builds substantial inventories of hams in anticipation of its future holiday
business. Also, the Company's sales of skinless smoked sausages, hot dogs and
bacon products are generally higher during the summer months.
PRINCIPAL PRODUCTS PRODUCED
The Company's business involves the production and sale of consumer-brand
labeled, packaged meat and poultry products, such as bacon, hot dogs and lunch
meats, hams, smoked sausages and turkey products. Shipments by category of these
products for the five most recent fiscal years were as follows:
Product Category
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(IN MILLIONS OF POUNDS)
<S> <C> <C> <C> <C> <C>
Bacon.................................................... 100.7 111.3 123.1 110.3 114.3
Hot dogs and lunch meats................................. 72.2 71.1 141.9 117.1 130.8
Hams..................................................... 74.1 85.4 125.9 113.4 91.5
Smoked sausages.......................................... 61.3 64.3 65.2 59.4 59.0
Turkey products.......................................... 24.3 25.2 27.0 24.9 21.3
Other.................................................... 19.1 20.9 24.6 27.0 25.8
----- ----- ----- ----- -----
Total............................................... 351.7 378.2 507.7 452.1 442.7
===== ===== ===== ===== =====
</TABLE>
The Company's national sales organization, which has regional offices,
markets consumer packaged meat and poultry products through a direct sales force
and through a network of brokers. Price lists, product availability, marketing
programs and payment terms, however, are determined by the corporate office. The
Company's customer base is generally composed of wholesalers, wholesale clubs
and 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 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
2
<PAGE> 4
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
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, is primarily engaged in the production of hot
dogs. The products are sold to supermarket chains and to international markets
under brand names which include "Wilson Certified(R)," "Corn King(R)" and
"Colonial(R)" and other controlled and private label brands.
The Thorn Apple Valley-Ponca City division of the Company ("Ponca City"),
which is located in Ponca City, Oklahoma, is primarily engaged in the production
of boneless and bone-in hams, premium, double glazed spiral sliced hams and
premium sliced lunch meats such as turkey ham, turkey breast and cooked ham. 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.
TRADEMARKS AND LICENSES
The Company owns or has the right to use over 80 various trademarks,
including those described above. The trademarks are valuable to the Company
because of the significant market advantage that name recognition provides in
the national and international retail markets served by the Company. Most of the
trademarks used by the Company are registered with the appropriate
administrative offices, and the Company intends to renew each such registration
as long as the related trademark is used with respect to a current line of
products.
DISTRIBUTION AND CUSTOMERS
During fiscal 1998 approximately 13.5% of the Company's products were
marketed in Michigan. This percentage was 14.7% and 12.3% for fiscal 1997 and
1996, respectively. The balance of the products were marketed in each of these
years primarily in 46 other states, Washington, D.C., Russia and to Pacific Rim
countries. Sales to customers in foreign countries during fiscal 1998 totaled
approximately $34,168,000. This total was $17,752,000 for fiscal 1997 and
approximately $7,241,000 for fiscal 1996.
On a regular basis, the Company sells its products to more than 500
customers. These customers consist primarily of wholesalers, wholesale clubs and
supermarket chains. For fiscal 1998, 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.
In servicing its customers, the Company uses two distribution centers,
strategically located in Edwardsville, Kansas and Detroit, Michigan. The
distribution centers' geographic locations allow the Company greater flexibility
in providing the highest level of service in meeting the needs of the Company's
customers. In addition to increasing the level of customer service, the
distribution centers have allowed the Company to increase its efficiencies,
thereby reducing overall distribution costs.
The Company operates a fleet of refrigerated tractor-trailers and
additional trailers which are used for transporting a portion of its products to
customers and for transporting raw materials to the Company's production
facilities. The Company also engages the services of contract carriers,
including Coast Refrigerated Trucking Co., Inc. and National Food Express, Inc.,
both wholly-owned subsidiaries of the Company. The Company's products are
shipped to supermarket chains, wholesale clubs and wholesalers. In addition to
its own delivery equipment, the Company utilizes non-affiliated carriers or has
customers make their own arrangements for delivery.
3
<PAGE> 5
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
RAW MATERIALS
The Company's primary raw material is pork. The Company also purchases
poultry, beef and other meats required in its manufacturing processes and other
materials such as seasonings, smoking and curing agents, sausage casings and
packing materials from a number of readily-available sources.
COMPETITION
The meat packing and manufacturing industry is highly competitive. The
Company competes with large national, regional and local companies, some of
which have substantially greater sales volume, brand name recognition and
financial resources than the Company. Competition is encountered both in the
procurement of raw materials and in the sale of products. The Company's products
also compete with other meat, fish and poultry products. Competition exists
mainly with respect to product quality, name recognition, price and service.
EMPLOYEES
The Company has approximately 3,100 employees, approximately 2,300 of whom
are engaged in the production of the processed meat and poultry products, and
approximately 800 of whom are employed in administration, sales or
transportation.
The majority of the Company's production workers are employed under five
union contracts. These contracts are generally for a period of two to four years
and have various expiration dates through the fourth quarter of fiscal 2002. The
Company is presently negotiating with one of its unions whose contract expired
on July 3, 1998. The union is currently working under a short-term contract
extension. The Company has historically maintained good labor relations. The
unexpired portions of the existing agreements contain no significant labor cost
increases.
REGULATION
Like other participants in the meat and poultry processing industry, the
Company is subject to various laws and regulations relating to the construction
and maintenance of facilities, production standards and pollution control
administered by federal, state and other government entities, including the
Environmental Protection Agency and corresponding state agencies such as the
Michigan Department of Natural Resources, the United States Department of
Agriculture, and the Occupational Safety and Health Administration. All of the
Company's existing processed meat and poultry products plants are federally
inspected by the United States Department of Agriculture under the Federal Meat
Inspection Act. The Company believes that it is in compliance with all health,
environmental and other laws and regulations in all material respects and that
continued compliance with existing standards will not have a material effect on
the Company's results of operations or financial condition.
SUPPLY AGREEMENT
In September 1998, the Company entered into a 5 year agreement with one of
the largest slaughterers of hogs and cattle in the United States. Under the
terms of the agreement, the Company has agreed to purchase at least 80% of the
Company's total requirements of beef and pork for use in its processing
operations.
4
<PAGE> 6
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
ITEM 2. PROPERTIES
The Company's principal plants, distribution centers and corporate
headquarters, all of which are owned by the Company (unless otherwise
indicated), are located as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LAND AREA FLOOR SPACE
LOCATION OPERATION IN ACRES (SQ. FT.)
-------- --------- --------- -----------
<S> <C> <C> <C>
Detroit, Michigan(4) Hog slaughtering and boning 3.2 218,000
operations
Ponca City, Oklahoma Producer of boneless and bone-in 42.0 171,000
hams, premium double-glazed spiral
sliced hams and premium sliced lunch
meats
Detroit, Michigan Producer of premium sliced lunch 4.8 150,000
meats, spiral sliced hams, cooked
hams, deli hams and specialty
boneless hams
Holly Ridge, North Carolina Producer of bacon products 179.0 150,000
Grand Rapids, Michigan Producer of hot dogs, lunch meats, 18.5 135,000
corned beef and smoked sausage
Forrest City, Arkansas Producer of hot dogs 11.3 70,000
Edwardsville, Kansas(1) Distribution center -- 60,000
Detroit, Michigan(1)(2) Distribution center -- 50,000
Walker, Michigan Poultry boning and manufacture of 27.0 45,000
pork sausage and corned beef products
Southfield, Michigan(3) Corporate headquarters -- 34,000
</TABLE>
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(1) The Company leases warehouse space in these facilities.
(2) This facility is leased from a related party.
(3) The Company leases this office space.
(4) The Company closed this facility in July 1998. See Item 1 -- Discontinued
Operations.
In addition to the Company's plants, the Company owns and leases various
buildings in Michigan and North Carolina. These buildings are used for
maintenance, storage, certain manufacturing, distribution and other ancillary
services and truck garages.
The land on which each of these properties is located (excluding the leased
properties) is owned by the Company. The properties described above were subject
to mortgages collateralizing outstanding indebtedness in the aggregate amount of
approximately $127.1 million as of May 29, 1998. As of the date of this Annual
Report on Form 10-K, substantially all of the Company's assets are subject to
liens. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition."
The Company believes its plants and equipment are in good repair and
suitable for the present operation of its business. The production facilities of
the plants are being utilized on either a one-shift or two-shift basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various ordinary or routine litigation
incidental to its business, none of which, in the opinion of management, is
expected to have a material adverse effect on the Company's financial position.
5
<PAGE> 7
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY MATTERS
As of September 9, 1998 there were 493 shareholders of record of the
Company.
The shares of the Company's Common Stock are traded in the over-the-counter
market and their price is quoted on the Nasdaq National Market under the symbol
"TAVI." The table below sets forth the range of the highest and the lowest sales
prices and the cash dividends paid for the past two fiscal years.
In October 1995, the Company's Board of Directors discontinued the payment
of dividends on the Company's Common Stock in order to conserve cash for future
operations. Since such date, the Company entered into agreements with various
lenders which restrict the Company's ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Financial Condition" below. The Company has no current plans of
paying dividends on its Common Stock.
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
SALES PRICE SALES PRICE
FISCAL ---------------- ----------------
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First..................................................... $19.75 $16.50 $14.25 $ 8.75
Second.................................................... $18.00 $13.62 $15.75 $11.31
Third..................................................... $18.62 $10.00 $16.75 $13.12
Fourth.................................................... $19.75 $13.50 $19.75 $12.25
</TABLE>
6
<PAGE> 8
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)(2)
----------------------------------------------------------------------------
MAY 27, 1994 MAY 26, 1995 MAY 31, 1996 MAY 30, 1997 MAY 29, 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................ $454,508,694 $446,709,607 $628,069,680 $602,207,303 $519,995,976
Income (loss) from
continuing
operations............. $ 9,528,596 $ 3,633,414 $(15,067,174) $ 1,395,487 $ (2,514,985)
Income (loss) from
discontinued
operations............. $ 4,554,777 $ 1,621,472 $ (6,640,570) $ (4,561,728) $ (6,631,791)
Basic earnings per share:
Income (loss) from
continuing
operations.......... $1.62 $.63 $(2.61) $0.23 $(0.41)
Fully diluted earnings
per share:
Income (loss) from
continuing
operations.......... $1.60 $.62 $(2.61) $0.23 $(0.41)
Total assets............. $185,442,085 $204,296,365 $327,140,201 $302,786,457 $263,913,004
Total long-term debt
(excluding current
portion)............... $ 27,936,985 $ 35,464,669 $159,808,923 $150,128,541 $148,249,545
Cash dividends per
share.................. $.27 $.28 $.07 $-- $--
</TABLE>
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(1) The Company's fiscal year consists of the 52- or 53-week period ending on
the last Friday in May of each year. Fiscal 1996 was a 53-week fiscal year
and all other years presented in this table were 52-week fiscal years.
(2) Net sales for all fiscal years presented have been restated to reflect the
discontinuance of the fresh pork operations.
For additional discussion of the differences in operating results in fiscal
1998 as compared to fiscal 1997, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
During the fourth quarter of fiscal 1998, the Company formalized a plan to
exit the fresh pork business. The Company announced its plans in June 1998 and
closed its fresh pork facility in July 1998. The Company's current and prior
year comparative Results of Operations exclude the results of the discontinued
fresh pork operations. The Company recorded in the fourth quarter an after-tax
charge related to the loss on disposal of the fresh pork operations of $39.3
million (See Note 13 of the Notes to the Consolidated Financial Statements for
additional information related to the discontinued operations.).
The following discussion analyzes material changes in the financial
information of the Company on a year to year basis.
RESULTS OF OPERATION
Fiscal 1998 as Compared to Fiscal 1997
(52 week fiscal year compared to 52 week fiscal year)
The Company's net loss from continuing operations for the fiscal year ended
May 29, 1998 was approximately $2.5 million compared with net income of $1.4
million in 1997. The fourth-quarter and year-end
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Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
results included an after-tax restructuring charge of $2.4 million (See Note 12
of the Notes to the Consolidated Financial Statements for additional information
related to the restructuring charge.) The LIFO (last in, first out) method of
valuing inventories had the effect after taxes of reducing net loss by
approximately $5.8 million and increasing net income by approximately $3.2
million in fiscal years 1998 and 1997, respectively.
The operating loss was primarily the result of lower margins due to a shift
in product mix resulting in a higher percentage of sales tonnage in lower margin
commodity type products. In addition to a shift in product mix, margins were
negatively impacted by a decrease in sales tonnage and increased competitive
pressures.
Net sales for fiscal 1998 decreased $82.2 million or 13.7% to $520.0
million from $602.2 million in the comparable year. Lower net sales dollars
resulted from lower average selling prices of 12.2% and a reduction in sales
volume of 2.1%. The lower average selling prices resulted from the shift in
product mix, lower average raw material costs as discussed below and increased
competitive pressures.
Cost of goods (including delivery costs) decreased $71.4 million or 13.7%
in fiscal 1998, as compared to fiscal 1997, primarily as a result of sharply
lower raw material costs. The largest component of raw materials during fiscal
1998 was pork. As a percentage of net sales, cost of goods remained unchanged at
86.6%.
Selling expenses were relatively unchanged from the prior year. Selling
expenses as a percentage of net sales increased to 5.4% from 4.7% from the prior
year primarily as a result of lower sales dollars.
General and administrative expenses decreased $2.8 million or 12.2% as
compared to fiscal 1997. The decrease is primarily the result of a cost
reduction program put in place during the third quarter. As a percentage of net
sales, general and administrative expenses remained unchanged at 3.9%
Net interest costs remained relatively unchanged from fiscal 1997. As a
percentage of net sales, net interest costs increased slightly to 1.8% from 1.6%
in the prior year.
The benefit for income taxes resulted from a loss from continuing
operations of $4.5 million as compared with income from operations of $1.7
million in fiscal 1997.
Additionally, the Company recorded in the fourth quarter an extraordinary
after-tax charge of $1.8 million primarily related to a loss on early
extinguishment of debt related to a loan restructuring (See Note 14 of the Notes
to the Consolidated Financial Statements for additional information related to
the extraordinary charge.).
The loss per share of common stock from continuing operations before
extraordinary charge on a basic and fully diluted basis increased to $.41 per
share compared to income of $.23 per share in the comparable year-ago period,
due to decreased profitability resulting from the factors discussed above.
Fiscal 1997 as Compared to Fiscal 1996
(52 week fiscal year compared to 53 week fiscal year)
The Company's net income from continuing operations for the fiscal year
ended May 30, 1997 was $1.4 million compared with a net loss of $15.1 million in
1996. The fourth-quarter and year-end net results include an after-tax
restructuring charge of $3.3 million. The restructuring charge covers an
estimate of future costs associated with the suspension of a joint production
agreement at a processing facility in Council Bluffs, Iowa; see Note 12 of the
Notes to the Consolidated Financial Statements for additional information
related to the restructuring charge. The LIFO (last in, first out) method of
valuing inventories had the effect after taxes of increasing earnings by
approximately $3.2 million compared with an increase to net loss of $8.9 million
in fiscal 1996. The improvement in results is primarily attributable to higher
processed meat operating margins.
Operating profits improved significantly as a result of higher margins,
improved product mix, lower selling expenses and improved plant operating
efficiencies. Offsetting higher margins was a reduction in sales tonnage
8
<PAGE> 10
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
attributable to the Company's planned elimination of lower-margin product lines
and its focus on maintaining reasonable profit margins on high-volume commodity
products.
Net sales for fiscal 1997 decreased $25.9 million or 4.1% to $602.2 million
from $628.1 million in the prior year. Lower net sales resulted form a decrease
in sales volume of 11% offset by increases in average selling prices of 7.9%.
The increase in average selling prices was primarily attributable to the 15%
increase in the cost of pork, the Company's primary raw material.
Cost of goods sold (including delivery costs) decreased $56.8 million or
9.8% in fiscal 1997, as compared to fiscal 1996, primarily as a result of lower
sales volume. As a percentage of net sales, cost of goods sold decreased to
86.6% in fiscal year 1997 from 92.1% in fiscal 1996, principally as a result of
improved operating efficiencies. Operationally, the Company's facilities
continue to run very efficiently on a direct-cost basis.
Selling expenses decreased $5.8 million or 17.2% from the prior year
period, primarily as a result of lower promotional expenses and a reduction in
operating costs associated with the sales department's completion of its
integration of the Wilson sales function into the Company's business. As a
percentage of net sales, selling expenses decreased to 4.7% from 5.4%.
General and administrative expenses remained relatively unchanged from the
prior year. As a percentage of net sales, general and administrative expenses
increased to 3.9% from 3.7%.
Net interest costs increased $2.3 million, or 32.3%. The increase is
attributable to an increase in interest expense related to increased borrowings
under the Company's revolving credit agreement, as a result of the Company's
fiscal 1996 operating losses and capital expenditures related to the Ponca City
facility construction and increased interest rates associated with the Company's
restructuring of its long-term revolving credit and private placement note
agreements in September 1996.
The provision for income taxes increased $9.5 million, primarily due to the
increase in pre-tax income from continuing operations of $25.9 million from a
loss of $24.3 million to income of $1.7 million in fiscal year 1997 resulting
from the factors discussed above. The Company's effective tax provision
(benefit) rate increased to 15.8% from (37.9%).
Earnings per share of common stock from continuing operations increased
$2.84 to income of $.23 from a loss of $2.61 per share for the prior year
period. The increase in income resulted from the factors discussed above.
FINANCIAL CONDITION
The Company's business is characterized by high unit sales volume and rapid
turnover of inventories and accounts receivable. The demand for seasonal
borrowings usually peaks in early December when ham inventories and accounts
receivable are at their highest levels. These borrowings are generally repaid in
January when the accounts receivable generated by the sales of these hams are
collected.
The Company has historically maintained lines of credit in excess of the
cash needs of its business. At May 29, 1998, the Company had a revolving credit
agreement with a consortium of participating financial institutions whereby it
could borrow in the aggregate up to $85 million, subject to a borrowing base
limitation measured by eligible inventory and accounts receivable of the
Company, with an additional $10 million for meeting seasonal demands of which
$48.6 million was drawn upon and $8.2 million was used to support letters of
credit. At May 29, 1998, the Company also had a term loan in place with the same
consortium of financial institutions with principal amount outstanding of $75
million. See Note 4 of the Notes to the Consolidated Financial Statements for
information related to the applicable interest rates under the revolving credit
agreement and the term loan at May 29, 1998.
9
<PAGE> 11
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
At May 29, 1998, the Company had approximately $3 million in cash. Cash
provided by operations during the fifty-two weeks ended May 29, 1998 was
approximately $8.5 million. Cash available at the beginning of the year plus
cash generated from operations and acquired from financing and investing
activities was used principally to pay down borrowings under the revolving
credit agreement and other long-term debt of $76.8 million and to fund capital
expenditures of $10.2 million. The Company's net working capital decreased to
$40.0 million at May 29, 1998 from $56.2 million at May 30, 1997.
The Company's debt is collateralized by substantially all of the Company's
assets. In addition, the various loan agreements contain financial covenants
with respect to consolidated net worth and interest coverage ratio (as defined
therein). Furthermore, 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.
On May 29, 1998, the Company was not in compliance with certain financial
covenants relating to its loan and security agreement (the "loan agreement")
with a consortium of lenders (the "lender group"). On September 10, 1998, the
lender group waived the Company's past non-compliance with such financial
covenants and amended certain covenants and other terms and conditions of the
loan agreement. The following is a description of the significant changes to the
loan agreement as a result of the amendment:
1. The maximum amount available under the revolving loan was reduced
by $15 million to $70 million, with an additional $10 million
available to meet seasonal demands.
2. The Company made a principal payment of $5 million on the term
loan, reducing the principal balance outstanding to $70 million.
3. The maturity date under the loan agreement was changed from April
15, 2001 to August 31, 1999.
4. The interest rate on the revolving loan will increase by .75
percentage points, so that the Company may borrow either at the
prime rate plus .75 percent or LIBOR plus 3 percent at the option
of the Company, as provided in the loan agreement.
5. The interest rate on the term loan will increase by .5 percentage
points, so that the Company may borrow either at the prime rate
plus 1 percent or LIBOR plus 3.25 percent at the option of the
Company, as provided in the loan agreement.
6. The Company will make payments of certain fees to the lender group
either in cash or by delivery of warrants to purchase the Company's
common stock or a combination thereof, at the Company's option, as
follows:
<TABLE>
<CAPTION>
PAYMENT DATE AMOUNT EARNED DATE
------------ ------ -----------
<S> <C> <C>
4/30/99............................................. $ 500,000 6/30/99
6/30/99............................................. $1,000,000 8/31/99
8/31/99............................................. $1,500,000 8/31/99
</TABLE>
If the Company elects to make any portion of the payment through issuance
of warrants to the lender group, the number of shares of common stock of the
Company subject to the warrants will be determined by dividing the amount of the
payment to be paid with warrants by a $7.50 per share conversion price. In
total, warrants for up to 400,000 shares of common stock may be issued by the
Company to make such payments.
The Company exports a significant portion of its hot dog production to
Russia. As a result of recent economic and political instability, including the
rapid devaluation of its currency, the Company's continued ability to transact
business in this region is uncertain. As of August 28, 1998, the Company had
inventory and accounts receivable of approximately $13 million related to the
production and sale of Russian products. At this time, the Company is unable to
predict if it will sustain losses related to these assets.
10
<PAGE> 12
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
The Company anticipates net capital expenditures during fiscal 1999 of
approximately $5.0 million, which will be used to upgrade various machinery and
equipment with continued emphasis on projects that will further streamline
operations, for increased efficiencies and productivity gains. Management
believes that funds provided from operations and borrowings under available
lines of credit will permit it to continue to finance its current operations and
to further develop its business in accordance with its operating strategies.
YEAR 2000
The Company has initiated a Year 2000 compliance program. The compliance
program has established a process for evaluating and managing the risks and
costs associated with this issue. The Company has dedicated internal resources
to address the Year-2000 issue. In fiscal 1996, the Company completed a two-
year project that re-engineered some key accounting and logistics systems all of
which were made Year 2000 compliant. The Company expects to have all remaining
critical systems Year 2000 compliant. As a result of the completion of the
fiscal 1996 project, the Company does not foresee any risks or costs related to
the Year 2000 compliance issue that would have a material adverse effect on the
Company.
OTHER
The Company believes that the impact of inflation and changing prices would
not significantly affect the Company's net income reported on a historical cost
basis. This belief is based on the following:
1. Substantially all of the Company's inventories are stated on a LIFO
basis.
2. Any increase in depreciation expense as a result of increased cost to
replace property, plant and equipment is generally offset by
productivity gains and cost savings due to improved efficiency resulting
from technological improvements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Pages immediately following signature page)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
11
<PAGE> 13
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
The directors of the Company are as follows:
<TABLE>
<CAPTION>
CURRENT
DIRECTOR TERM
NAME AGE POSITION HELD WITH COMPANY SINCE EXPIRES
---- --- -------------------------- -------- -------
<S> <C> <C> <C> <C>
Henry S Dorfman...................... 76 Chairman of the Board 1959 1998
Joel Dorfman......................... 47 President, Chief Executive Officer and 1978 1998
Director
Moniek Milberger..................... 68 Director 1959 1999
John C. Canepa....................... 68 Director 1983 1999
Louis Glazier........................ 49 Executive Vice President Finance and 1988 2000
Administration and Director
Burton D. Farbman.................... 55 Director 1988 2000
Seymour Roberts...................... 64 Director 1992 2000
</TABLE>
The executive officers of the Company who are not also directors are:
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION HELD WITH COMPANY SINCE
---- --- -------------------------- -------
<S> <C> <C> <C> <C>
Keith Jahnke......................... 44 Executive Vice President Sales 1987
Edward Boan.......................... 48 Executive Vice President Pork and Labor 1987
Relations
</TABLE>
The following is a brief account of the business experience of each of the
above-named persons during the past five years:
Henry S Dorfman, a founder of the Company, has served as Chairman of the
Board since 1959. Mr. Dorfman also served as Chief Executive Officer of the
Company from 1959 to 1994.
Joel Dorfman has served as President of the Company since 1985 and Chief
Executive Officer of the Company since 1995. Mr. Dorfman has also been a
director of the Company since 1978. Mr. Dorfman also served as Chief Operating
Officer of the Company from 1985 to 1994. Joel Dorfman is the son of Henry S
Dorfman.
Moniek 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 consulting principal of Crow 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.
Louis Glazier has been Executive Vice President Finance and Administration
of the Company since 1988. Mr. Glazier has also been a director of the Company
since 1988.
Burton D. 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.
12
<PAGE> 14
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
Seymour 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.
Keith Jahnke has been Executive Vice President Sales since May 1998. Mr.
Jahnke served as Executive Vice President Processed Meats from May 1996 to May
1998. Mr. Jahnke also served as Executive Vice President Sales and Marketing for
the Company from 1987 to May 1996.
Edward Boan became Vice President of Human Resources in 1985. In 1987, he
also became General Manager and Vice President Fresh Pork. In 1991, Mr. Boan
became Executive Vice President Pork and Human Resources and, in 1998, he became
Executive Vice President Pork and Labor Relations.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Under the Company's standard arrangements, each director who is not an
officer of the Company receives an annual director's fee in the amount of
$8,750. In addition, during fiscal 1998, Mr. Milberger received $21,800 as
compensation for consulting services rendered to the Company.
COMPENSATION OF EXECUTIVES
The following tables sets forth information with respect to the
compensation paid or accrued by the Company during the last three years ended
May 29, 1998, to or on behalf of each executive officer of the Company including
the Chief Executive Officer (the "Named Officers"), in all capacities in which
they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------ COMPENSATION
FISCAL OTHER ANNUAL AWARDS -- ALL OTHER
YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
------ ------ ----- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Joel Dorfman............... 1998 $441,538 21,938 50,000 25,355(3)
President and 1997 486,100 -- 20,003 50,000 31,352(3)
Chief Executive Officer 1996 600,000 -- 12,387 40,000 25,361(3)
Henry S Dorfman............ 1998 -0- 24,270 -- 6,524(3)
Chairman of the Board 1997 207,058 -- 52,943 -- 7,178(3)
1996 500,000 -- 119,262 -- 7,178(3)
Louis Glazier.............. 1998 240,385 8,260 12,500 1,000
Executive Vice President 1997 250,000(3) -- 22,415 12,500 1,000
Finance and
Administration 1996 250,000 -- 13,103 10,000 2,261(3)
Keith Jahnke............... 1998 240,385 2,675 12,500 1,000
Executive Vice President 1997 250,000 -- 2,675 12,500 1,000
Sales 1996 250,000 -- 2,675 10,000 1,000
Edward Boan................ 1998 240,385 2,155 12,500 1,000
Executive Vice President 1997 250,000 -- 2,150 12,500 1,000
Pork and Labor Relations 1996 250,000 -- 1,975 10,000 1,000
</TABLE>
- - -------------------------
(1) Includes amounts relating to use of company-owned automobiles and
reimbursement of business, entertainment and other expenses.
13
<PAGE> 15
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
(2) Except as noted, consists only of the Company's 401(k) contributions.
(3) Includes premiums paid by the Company for Joel Dorfman, Henry S Dorfman and
Louis Glazier in connection with split dollar life insurance policies
maintained by the Company on their lives in policy amounts (as of May 31,
1998) of $1,938,496, $178,000 and $100,000, respectively. Pursuant to this
arrangement, the Company pays the annual premiums on such policies, each of
which is owned by the spouse of the insured, and the Company has received a
collateral assignment of the policies and will recover the premiums
advanced, without interest, upon the death or termination of employment of
each insured. The aggregate premiums paid (and to be recovered by the
Company) for these policies on the lives of Joel Dorfman, Henry S Dorfman
and Louis Glazier as of May 31, 1998 were $387,330, $221,654 and $12,455,
respectively.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended May 29, 1998 to each of the
executive officers of the Company named in the Summary Compensation Table above:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED VALUE
---------------------------------------------------------- AT ASSUMED ANNUAL
PERCENTAGE OF RATES OF STOCK PRICE
TOTAL OPTIONS APPRECIATION AT END OF
GRANTED TO PER SHARE TEN-YEAR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ------- ------------- --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Joel Dorfman.................. 50,000 20.49% 15.813 February 14, 2008 $497,235 $1,260,090
Henry S Dorfman............... -- -- -- --
Louis Glazier................. 12,500 5.12% 15.813 February 14, 2008 124,309 315,023
Keith Jahnke.................. 12,500 5.12% 15.813 February 14, 2008 124,309 315,023
Edward Boan................... 12,500 5.12% 15.813 February 14, 2008 124,309 315,023
</TABLE>
- - -------------------------
(1) Each Option granted in fiscal 1998 is exercisable immediately.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended May 29, 1998, Joel Dorfman, John C. Canepa,
Burton D. Farbman, Moniek Milberger and Seymour Roberts served as members of the
Company's Compensation Committee. Joel Dorfman has been President of the Company
since March, 1985 and Chief Executive Officer since July, 1995.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General. The Compensation Committee's overall compensation policy
applicable to the Company's executive officers is to provide a compensation
program that is intended to attract and retain qualified executives for the
Company and to provide them with incentives to achieve Company goals and
increase shareholder value. The Compensation Committee implements this policy
through establishing salaries and bonuses. The Compensation Committee's current
policy is not to provide significant pension or other retirement benefits for
the Company's employees.
Salaries. The Compensation Committee's policy is to provide salaries that
are generally similar to those of similar executive officers in similar
companies. The Compensation Committee determines comparable salaries through
discussions with candidates for such positions, Company research and the
research of independent consultants concerning the salaries paid by the
Company's competitors.
14
<PAGE> 16
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
Bonuses. Messrs. Henry S Dorfman, Joel Dorfman, Glazier, Jahnke and Boan
are eligible to receive cash bonuses pursuant to the Company's Cash Bonus Plan,
which was approved by the shareholders at the 1994 Annual Meeting, and which is
administered by the Executive Compensation Committee. The Company's bonus
program (the "Executive Bonus Program") permits other executive officers, and
certain other participating employees, as selected by the Compensation Committee
in its sole discretion, to earn annual cash bonus awards. The Compensation
Committee's policy is to provide a major portion of each executive officer's
total compensation in the form of such bonuses to provide them with incentives
to achieve the Company's financial and operational goals and increase
shareholder value. Bonuses are generally determined as a percentage of the
Company's pre-tax income in excess of predetermined target levels which vary
from year to year as established by the Compensation Committee at the beginning
of each fiscal year. As a result, the compensation of the Company's executive
officers is made dependent on the Company's overall performance. Such bonuses
are also intended to identify and give priority to the Company's goals by tying
compensation to the Company's business plans. In addition to the foregoing, for
employees who are not covered by the Company's Cash Bonus Plan, the Compensation
Committee takes into account the participant's position, salary level and
individual contributions to the Company in determining a particular bonus award.
Other participants in the Executive Bonus Program are selected from among those
employees of the Company who the Compensation Committee believes have the
capacity to contribute in a substantial way to the successful performance of the
Company. Bonuses are paid following the end of the fiscal year for which the
bonus is earned. None of the Company's executive officers received a cash bonus
in fiscal 1998.
Stock Options. Stock options are awarded by the Stock Option Committee of
the Board of Directors. The Stock Option Committee's policy is to award stock
options to the Company's officers in amounts reflecting the participant's
position and ability to influence the Company's overall performance. Options are
intended to provide participants with an increased incentive to make
contributions to the long-term performance of growth of the Company, to join the
interests of participants with the interests of shareholders of the Company and
to attract and retain qualified employees. The Stock Option Committee's policy
has been to grant options with a term of ten-years to provide a long-term
incentive and to fix the exercise price of the options at the fair market values
of the underlying shares on the date of grant. As a result, such options will
only have value if the price of the underlying shares increases.
Fiscal 1998 Compensation Decisions Regarding Joel Dorfman. In accordance
with the Company's Cash Bonus Plan, the Executive Compensation Committee did not
approve a bonus for Joel Dorfman for fiscal 1998. Joel Dorfman did not
participate in the approval of his own compensation, but did participate in
discussion of the Company's performance for fiscal 1998.
By the Compensation Committee
JOEL DORFMAN
JOHN C. CANEPA
BARTON D. FARBMAN
MONIEK MILBERGER
SEYMOUR ROBERTS
15
<PAGE> 17
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG THORN APPLE VALLEY, INC.,
MEAT PACKING INDEX AND NASDAQ MARKET INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THORN APPLE INDUSTRY NASDAQ
(FISCAL YEAR COVERED) VALLEY, INC. INDEX MARKET INDEX
<S> <C> <C> <C>
1993 100 100 100
1994 126.63 117.68 109.66
1995 91.83 141.79 120.03
1996 71.21 178.53 169.42
1997 89.95 235.18 190.08
1998 81.21 237.34 241.34
</TABLE>
- - -------------------------
Assumes $100 invested on May 28, 1993
Assumes dividend reinvested
Fiscal year ending May 29, 1998
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF SECURITIES
As of September 10, 1998, Henry S Dorfman was the beneficial owner of
2,420,642 shares (39.4%) of the Company's Common Stock. Included in the shares
beneficially owned by Henry S Dorfman are (a) 1,700,806 shares of the Company's
Common Stock held by Henry S Dorfman as trustee under charitable remainder
trusts for the benefit of Henry S Dorfman's children, which shares Henry S
Dorfman has the power to vote, and (b) 55,000 shares of the Company's Common
Stock held by the Henry S Dorfman and Mala Dorfman Foundation, which Henry S
Dorfman has the power to vote. Also included in the shares beneficially owned by
Henry S Dorfman are 286,660 shares of the Company's Common Stock that are
subject to a Shareholder Agreement, dated as of August 1, 1988 (the "Shareholder
Agreement"), pursuant to which Henry S Dorfman has the sole power to vote such
shares; such shares are owned by Joel Dorfman, Henry S Dorfman's son.
As of September 10, 1998, Joel Dorfman was the beneficial owner of 638,360
shares (9.8%) of the Company's Common Stock, of which Henry S Dorfman has the
power to vote 286,660 shares. In addition, included in the total number of
shares beneficially owned by Joel Dorfman as of September 10, 1998 are 351,250
shares which Joel Dorfman has the right to acquire within 60 days of such date
pursuant to the Company's 1982 Stock Option Plan, the Company's 1990 Employee
Stock Option Plan and the Company's 1996 Stock Option Plan (collectively
referred to as the "Company's Stock Option Plans") and 450 shares held
16
<PAGE> 18
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
in custodial accounts for the benefit of Joel Dorfman's sons. As of September
10, 1998, Henry S Dorfman, together with members of his family, directly or
indirectly beneficially owned 2,771,892 shares (42.7%) of the Company's
outstanding Common Stock. The address of Henry S Dorfman and Joel Dorfman is
26999 Central Park Boulevard, Suite 300, Southfield, Michigan 48076.
As of September 10, 1998, David A. Rocker, a registered investment advisor,
beneficially owned 596,600 shares (9.7%) of the Company's Common Stock, all of
which shares are held in investment advisory accounts managed by Mr. Rocker. Mr.
Rocker has sole voting and investment power over all such shares. The address of
Mr. Rocker is 45 Rockefeller Plaza, New York, New York 10111.
As of September 10, 1998, Heartland Advisors, Inc. ("Heartland"), a
registered investment advisor, beneficially owned 533,595 shares (8.7%) of the
Company's Common Stock, all of which shares are held in investment advisory
accounts of Heartland. Heartland has sole voting and/or investment power over
such shares. The address of Heartland is 790 North Milwaukee Street, Milwaukee,
Wisconsin 53202.
As of September 10, 1998, DDJ Capital Management, LLC ("DDJ"), a registered
investment advisor, may be deemed to beneficially own 588,340 shares (9.6%) of
the Company's Common Stock, all of which are held in portfolios of clients
advised by DDJ. In particular, DDJ Overseas Corp., a company advised by and
affiliated with DDJ, owns 515,860 shares of Common Stock, The Copernicus Fund,
L.P., a limited partnership advised by and affiliated with DDJ, owns 50,330
shares of Common Stock, and Kepler Overseas Corp., a company advised by DDJ,
owns 22,150 shares of Common Stock. DDJ Copernicus, an affiliate of DDJ, is the
general partner of The Copernicus Fund, L.P., and may be deemed to beneficially
own the shares of Common Stock owned by The Copernicus Fund, L.P. DDJ Galileo
Corp., an affiliate of DDJ, is the general partner of DDJ Overseas Corp., and
may be deemed to beneficially own the shares of Common Stock owned by DDJ
Overseas Corp. The address of each of DDJ, DDJ Galileo Corp., The Copernicus
Fund, L.P., and DDJ Copernicus, LLC is 141 Linden Street, Suite 4, Wellesly,
Massachusetts 02181. The address of each of DDJ Overseas Corp. and Kepler
Overseas Corp. is c/o Goldman Sachs (Cayman), Harbour Centre, George Town, Post
Office Box 896, Grand Cayman Islands.
As of September 10, 1998, Capital Guardian Trust company ("Capital
Guardian"), a bank as defined in Section 3(a)6 of the Exchange Act, beneficially
owned 405,000 shares (6.6%) of the Company's Common Stock. Capital Guardian a
wholly-owned subsidiary of Capital Group Companies, Inc., serves as an
investment advisor to the various investment accounts in which are held shares
of the Company's Common Stock. The address of Capital Guardian is 333 South Hope
Street, Los Angeles, California 90071.
As of September 10, 1998, Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment advisor, may be deemed to beneficially own 336,940 shares
(5.5%) of the Company's Common Stock, all of which shares were held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, for all of which
Dimensional serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares. The address of Dimensional is 1299 Ocean Avenue,
11th Floor, Santa Monica, California 90401.
17
<PAGE> 19
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
The following table sets forth the stock ownership of the Company's
directors and executive officers as of September 10, 1998.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME SHARES(1) OF CLASS
---- --------- --------
<S> <C> <C>
Henry S Dorfman............................................. 2,420,642(1) 39.4
Joel Dorfman................................................ 638,360(1) 9.8
Moniek Milberger............................................ 650 *
John C. Canepa.............................................. 200 *
Louis Glazier............................................... 81,721(2) 1.3
Burton D. Farbman........................................... 1,375 *
Seymour Roberts............................................. 300 *
Keith Jahnke................................................ 70,650(3) 1.1
Edward Boan................................................. 63,037(4) 1.0
All directors and executive officers as a group (9
persons).................................................. 2,989,825(5) 44.7
</TABLE>
- - -------------------------
* Less than 1.0%
(1) See page 16 for a description of Henry S Dorfman's and Joel Dorfman's share
holdings.
(2) Louis Glazier owns outright and has the sole voting and investment power for
11,414 shares. In addition, within 60 days of September 10, 1998, Mr.
Glazier has the right to acquire 70,000 shares pursuant to the Company's
Stock Option Plans. Also included in the number listed in the table above
are 307 shares owned by one of Mr. Glazier's daughters.
(3) Keith Jahnke owns outright and has the sole voting and investment power for
650 shares. In addition, within 60 days of September 10, 1998, Keith Jahnke
has the right to acquire 70,000 shares pursuant to the Company's Stock
Option Plans.
(4) Mr. Boan owns outright and has sole voting and investment power for 537
shares. In addition, within 60 days of September 10, 1998, Edward Boan has
the right to acquire 62,500 shares pursuant to the Company's Stock Option
Plans.
(5) Total includes 523,750 shares which such persons have the right to acquire
within 60 days of September 10, 1998 pursuant to the Company's Stock Option
Plans.
Management does not know of any other person who beneficially owned, as of
September 10, 1998, more than 5% of the Company's Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Mr. Milberger, a director, received $21,800 as compensation for consulting
services rendered to the Company.
The Company uses a freezer warehouse facility owned by Freezer Services of
Michigan, Inc., a corporation of which 75% of the stock is owned by Henry S
Dorfman. During fiscal 1998, the Company paid approximately $1,983,000 to
Freezer Services of Michigan for storage charges, blast freezing and handling.
Additionally, the Company paid Freezer Services of Michigan $882,000 for rent
during fiscal 1998 under a one-year lease extension that expires in January
1999. In the opinion of management, the terms of the Company's dealings with
Freezer Services of Michigan were at least as favorable to the Company as
generally available to the Company from independent parties at the time of the
transactions.
18
<PAGE> 20
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
14(a)(1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at May 29, 1998 and May 30, 1997
Consolidated Statements of Operations for the years ended May 29, 1998,
May 30, 1997 and May 31, 1996
Consolidated Statements of Shareholders' Equity for the years ended May
29, 1998, May 30, 1997 and May 31, 1996
Consolidated Statements of Cash Flows for the years ended May 29,
1998, May 30, 1997 and May 31, 1996
Notes to Consolidated Financial Statements
Financial statements of subsidiaries of the Company have been
omitted because the Company is an operating company and all material
subsidiaries are wholly-owned and are not indebted to any person other
than the parent or the consolidated subsidiaries in an amount which is
material to the total consolidated assets except indebtedness incurred
in the ordinary course of business which is not overdue and which
matures within one year from the date of its creation.
14(a)(2) Financial Statement Schedule
Report of Independent Accountants on Financial Statement Schedule
(included in report of independent accountants on financial statements)
of PricewaterhouseCoopers LLP.
II -- Valuation and qualifying accounts and reserves for the years
ended May 29, 1998, May 30, 1997 and May 31, 1996
Schedules other than those referred to are omitted for the reason
that they are not required or are not applicable.
14(a)(3) Exhibits
<TABLE>
<C> <S> <C>
(3) (a) Restated Articles of Incorporation. Exhibit (3)(a) is
incorporated herein by reference to Exhibit 3.1 to the
Company's Form S-2 Registration Statement, Registration No.
33-43287.
(b) Amendment to Restated Articles of Incorporation. Exhibit
(3)(b) is incorporated herein by reference to Exhibit (3)(b)
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 28, 1993.
(c) Amendment to Restated Articles of Incorporation. Exhibit
(3)(c) is incorporated herein by reference to Exhibit (3)(c)
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 30, 1997.
(d) By-laws, as amended. Exhibit (3)(d) is incorporated herein
by reference to Exhibit (3)(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 29, 1981.
(e) First Amendment to By-Laws of the Company. Exhibit (3)(e) is
incorporated herein by reference to Exhibit (3)(e) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 30, 1997.
</TABLE>
19
<PAGE> 21
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
<TABLE>
<C> <S> <C>
(10) Material Contracts
(a) Bond Purchase Agreement, dated as of July 1, 1984, among The
Onslow County Industrial Facilities and Pollution Control
Financing Authority, Branch Banking and Trust Company and
the Company.
Exhibit (10)(a) is incorporated herein by reference
to Exhibit (10)(f) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991, as
amended by its Form 8 dated October 10, 1991.
(b) Loan Agreement, dated as of July 1, 1984, between The Onslow
County Industrial Facilities and Pollution Control Financing
Authority and the Company.
Exhibit (10)(b) is incorporated herein by reference
to Exhibit (10)(g) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991, as
amended by its Form 8 dated October 10, 1991.
(c) Promissory Note in the principal amount of $6,000,000, dated
July 1, 1984, from the Company payable to The Onslow County
Industrial Facilities and Pollution Control Financing
Authority.
Exhibit (10)(c) is incorporated herein by reference
to Exhibit (10)(h) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991, as
amended by its Form 8 dated October 10, 1991.
(d) Security Agreement, dated as of July 1, 1984, between Branch
Banking and Trust Company and the Company.
Exhibit (10)(d) is incorporated herein by reference
to Exhibit (10)(i) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991, as
amended by its Form 8 dated October 10, 1991.
(e) Guaranty Agreement, dated as of July 1, 1984, from the
Company to Branch Banking and Trust Company.
Exhibit (10)(e) is incorporated herein by reference
to Exhibit (10)(j) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991, as
amended by its Form 8 dated October 10, 1991.
(f) Loan Agreement dated as of December 1, 1993 by and between
Michigan Strategic Fund and the Company relating to
$5,500,000 Adjustable Rate Demand Limited Obligation Revenue
Bonds.
Exhibit (10)(f) is incorporated herein by reference
to Exhibit (10)(ff) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 27, 1994.
(g) Asset Purchase Agreement, dated as of April 29, 1995, by and
among the Company and Doskocil Companies Incorporated and
Wilson Foods Corporation, Concordia Foods Corporation, Dixie
Foods Company and Shreveport Foods Company.
Exhibit (10)(g) is incorporated herein by reference
to Exhibit 2.1 to the Company's Report on Form 8-K
dated May 30, 1995, as amended by its Form 8-K/A dated
May 30, 1995.
</TABLE>
20
<PAGE> 22
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
<TABLE>
<C> <S> <C>
(h) First Amendment to Asset Purchase Agreement, dated as of May
26, 1995, by and among the Company, Foodbrands America,
Inc., successor by merger to Doskocil Companies
Incorporated, Wilson Foods Corporation, Concordia Foods
Corporation, Dixie Foods Company and Shreveport Foods
Company.
Exhibit (10)(h) is incorporated herein by reference
to Exhibit 2.2 to the Company's Report on Form 8-K
dated May 30, 1995, as amended by its Form 8-K/A dated
May 30, 1995.
(i) Noncompete Agreement, dated May 30, 1995, by Foodbrands
America, Inc., Wilson Foods Corporation, Concordia Foods
Corporation, Dixie Foods Company and Shreveport Foods
Company in favor of the Company.
Exhibit (10)(i) is incorporated herein by reference
to Exhibit 10.1 to the Company's Report on Form 8-K
dated May 30, 1995, as amended by its Form 8-K/A dated
May 30, 1995.
(j) Supply Agreement, dated May 30, 1995, by and among Wilson
Foods Corporation and Foodbrands America, Inc., Dixie Foods
Company and the Company.
Exhibit (10)(j) is incorporated herein by reference
to Exhibit 10.2 to the Company's Report on Form 8-K
dated May 30, 1995, as amended by its Form 8-K/A dated
May 30, 1995.
(k) Transition Service Agreement, dated May 30, 1995, by and
between Foodbrands America, Inc. and the Company.
Exhibit (10)(k) is incorporated herein by reference
to Exhibit 10.3 to the Company's Report on Form 8-K
dated May 30, 1995, as amended by its Form 8-K/A dated
May 30, 1995.
(l) Note Agreement, dated as of October 1, 1994, by and between
the Company and Allstate Life Insurance Company relating to
$8,000,000 principal amount 8.42% Senior Notes due October
1, 2003.
Exhibit 10(l) is incorporated herein by reference to
Exhibit 10(t) to the Company's Annual Report on Form
10-K for the fiscal year ended May 26, 1994, as
amended.
(m) Change of Control Agreement, dated February 24, 1998,
between Edward E. Boan and Thorn Apple Valley, Inc.
Exhibit 10(m) is incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended March 6, 1998, as amended by
Form 10-Q/A, filed May 14, 1998.
(n) Change of Control Agreement, dated February 24, 1998,
between Keith Jahnke and Thorn Apple Valley, Inc.
Exhibit 10(n) is incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the period ended March 6, 1998, as amended by
Form 10-Q/A, filed May 14, 1998.
(o) Change of Control Agreement, dated February 24, 1998,
between Louis Glazier and Thorn Apple Valley, Inc.
Exhibit 10(o) is incorporated herein by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the period ended March 6, 1998, as amended by
Form 10-Q/A, filed May 14, 1998.
</TABLE>
21
<PAGE> 23
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
<TABLE>
<C> <S> <C>
(p) Change of Control Agreement, dated February 24, 1998,
between Joel Dorfman and Thorn Apple Valley, Inc.
Exhibit 10(p) is incorporated herein by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the period ended March 6, 1998, as amended by
Form 10-Q/A, filed May 14, 1998.
(q) Loan and Security Agreement, dated as of April 16, 1998,
between the Company, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as Administrative Agent and as a Lender, Heller
Financial, Inc., as Collateral Agent, as Documentation Agent
and as a Lender, Harris Trust and Savings Bank, as Co-Agent
and as a Lender, and the other Lenders from time to time
party thereto.
(r) Waiver and Amendment No. 1 to Loan and Security Agreement,
dated as of September 10, 1998, by and among Heller
Financial, Inc., as a Lender and as Collateral Agent (the
"Collateral Agent") and Documentation Agent (the
"Documentation Agent") for the Lenders, Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as a Lender and as Administrative Agent (the
"Administrative Agent") for the Lenders, Harris Trust and
Savings Bank, as a Lender and a Co-Agent (the "Co-Agent")
for the Lenders, the other Lenders party thereto and Thorn
Apple Valley, Inc.
(s) $10,000,000 6 1/2% Convertible Debenture, due September 9,
2003, between Thorn Apple Valley, Inc. and IBP, inc.
(21) Subsidiaries of the registrant.
(23) Consent of PricewaterhouseCoopers LLP.
(27) Financial Data Schedule.
</TABLE>
14(b) The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year covered by this Report.
14(d)(5) Schedules (Pages following signature page)
22
<PAGE> 24
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on September 10, 1998.
THORN APPLE VALLEY, INC.
(Registrant)
By /s/ LOUIS GLAZIER
------------------------------------
Louis Glazier
Executive Vice President
Finance and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on September 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
Director
- - ---------------------------------------------
John C. Canepa
/s/ HENRY S DORFMAN Director
- - ---------------------------------------------
Henry S Dorfman
/s/ JOEL DORFMAN President and Director (principal executive
- - --------------------------------------------- officer)
Joel Dorfman
Director
- - ---------------------------------------------
Burton D. Farbman
/s/ LOUIS GLAZIER Executive Vice President Finance and
- - --------------------------------------------- Administration and Director (principal
Louis Glazier financial and accounting officer)
/s/ MONIEK MILBERGER Director
- - ---------------------------------------------
Moniek Milberger
Director
- - ---------------------------------------------
Seymour Roberts
</TABLE>
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Thorn Apple Valley, Inc.
Southfield, Michigan:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 17 present fairly, in all material
respects, the financial position of Thorn Apple Valley, Inc. and its
subsidiaries at May 29, 1998 and May 30, 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
May 29, 1998, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) on page 18 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan
July 24, 1998, except for the subsequent events
information presented in Notes 4, 9 and 15 for
which the date is September 10, 1998
F-1
<PAGE> 26
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 29, MAY 30,
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,072,464 $ 6,028,698
Short-term investments.................................... 500,000 500,000
Accounts receivable, net of allowance for doubtful
accounts (1998, $761,800; 1997, $888,500)............... 42,434,856 44,888,327
Inventories (Note 2)...................................... 58,715,450 65,115,331
Refundable income taxes................................... 632,323
Deferred income taxes (Note 5)............................ 3,592,000 2,727,000
Prepaid expenses and other current assets................. 6,277,836 7,683,296
------------ ------------
Total current assets............................... 115,224,929 126,942,652
------------ ------------
Property, plant and equipment:
Land...................................................... 1,261,380 1,276,933
Buildings and improvements................................ 48,814,916 67,692,480
Machinery and equipment................................... 112,469,354 158,207,873
Transportation equipment.................................. 5,820,609 7,056,966
Property under capital leases............................. 5,966,625 10,162,649
Construction in progress.................................. 1,570,829 1,807,098
------------ ------------
175,903,713 246,203,999
Less accumulated depreciation...................... 84,162,032 111,762,145
------------ ------------
91,741,681 134,441,854
------------ ------------
Other assets:
Intangible assets, net of accumulated amortization (1998;
$2,517,900; 1997; $1,678,600)........................... 31,054,100 31,893,400
Deferred income taxes..................................... 7,536,000
Other..................................................... 8,356,294 9,508,551
------------ ------------
Total other assets................................. 46,946,394 41,401,951
------------ ------------
$253,913,004 $302,786,457
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 31,143,268 $ 41,111,001
Accrued liabilities (Note 3).............................. 37,135,059 23,661,536
Current portion of long-term debt (Note 4)................ 6,959,824 4,566,445
Income Taxes (Note 5)..................................... 1,425,403
------------ ------------
Total current liabilities.......................... 75,238,151 70,764,385
------------ ------------
Other noncurrent liabilities (Note 12)...................... 3,330,674 3,675,000
Long-term debt (Note 4)..................................... 148,249,545 150,128,541
Deferred income taxes (Note 5).............................. 1,138,000
------------ ------------
Total noncurrent liabilities....................... 151,580,219 154,941,541
------------ ------------
Shareholders' equity:
Preferred stock: $1 par value; authorized 200,000 shares;
issued none Common nonvoting stock: $.10 par value;
authorized 20,000,000 shares; issued none Common voting
stock: $.10 par value; authorized 20,000,000 shares;
issued 6,133,198 shares in 1998 and 6,110,480 shares in
1997.................................................... 613,320 611,048
Capital in excess of par value............................ 10,800,915 10,500,213
Retained earnings......................................... 15,680,399 65,969,270
------------ ------------
27,094,634 77,080,531
------------ ------------
$253,913,004 $302,786,457
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 27
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
MAY 29, MAY 30, MAY 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net sales................................................... $519,995,976 $602,207,303 $628,069,680
------------ ------------ ------------
Operating costs and expenses:
Cost of goods sold, including delivery costs.............. 450,212,280 521,646,953 578,439,558
Selling................................................... 28,246,780 28,232,784 34,088,458
General and administrative................................ 20,526,639 23,376,507 23,203,387
Depreciation and amortization............................. 13,930,399 13,749,556 11,793,407
Restructuring charge (Note 12)............................ 3,631,436 5,000,000
------------ ------------ ------------
516,547,534 592,005,800 647,524,810
------------ ------------ ------------
Income (loss) from operations............................... 3,448,442 10,201,503 (19,455,130)
------------ ------------ ------------
Other expenses (income):
Interest, net............................................. 9,525,350 9,428,447 7,126,871
Other, net................................................ (1,600,923) (883,431) (2,316,827)
------------ ------------ ------------
7,924,427 8,545,016 4,810,044
------------ ------------ ------------
Income (loss) from continuing operations before income taxes
and extraordinary item.................................... (4,475,985) 1,656,487 (24,265,174)
Provision (benefit) for income taxes (Note 5)............... (1,961,000) 261,000 (9,198,000)
------------ ------------ ------------
Income (loss) from continuing operations before
extraordinary item........................................ (2,514,985) 1,395,487 (15,067,174)
Discontinued operations (Note 13):
Loss from operations of discontinued fresh pork division
(net of tax benefit of 1998, $3,622,000; 1997,
$2,501,000; 1996, $3,652,000)........................... (6,631,791) (4,561,728) (6,640,570)
Loss on disposal of fresh pork division (including tax
benefit of $1,750,000 for operating losses during
phase-out period) (net of tax benefit of $5,786,000).... (39,318,597)
------------ ------------ ------------
Loss from discontinued operations before extraordinary
item...................................................... (45,950,388) (4,561,728) (6,640,570)
Extraordinary item, loss on early extinguishment of debt
related to loan restructuring, (net of tax benefit of
$982,000) (Note 14)....................................... (1,823,498)
------------ ------------ ------------
Net loss.................................................... $(50,288,871) $ (3,166,241) $(21,707,744)
============ ============ ============
Basic earnings (loss) per share:
Continuing operations before extraordinary item........... $ (0.41) $ 0.23 $ (2.61)
============ ============ ============
Loss on discontinued operations........................... $ (1.08) $ (0.76) $ (1.15)
============ ============ ============
Loss on disposal of discontinued operations............... $ (6.42)
============ ============ ============
Extraordinary loss related to loan restructuring.......... $ (0.30)
============ ============ ============
Net loss.................................................. $ (8.21) $ (0.53) $ (3.76)
============ ============ ============
Fully diluted earnings (loss) per share:
Continuing operations before extraordinary item........... $ (0.41) $ 0.23 $ (2.61)
============ ============ ============
Loss on discontinued operations........................... $ (1.08) $ (0.75) $ (1.15)
============ ============ ============
Loss on disposal of discontinued operations............... $ (6.42)
============ ============ ============
Extraordinary loss related to loan restructuring.......... $ (0.30)
============ ============ ============
Net loss.................................................. $ (8.21) $ (0.52) $ (3.76)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 28
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 26, 1995..................... 5,770,647 $577,065 $ 6,771,071 $91,247,429
Net loss.................................. (21,707,744)
Cash dividends, $.07 per share............ (404,174)
Shares issued under employee stock
purchase plan (Note 7).................. 15,482 1,548 240,290
--------- -------- ----------- -----------
Balance, May 31, 1996..................... 5,786,129 578,613 7,011,361 69,135,511
Net loss.................................. (3,166,241)
Newly issued shares of common stock (Note
10)..................................... 279,883 27,988 2,972,358
Shares issued under employee stock
purchase plan (Note 7).................. 16,968 1,697 176,950
Exercise of stock options, including
related tax benefits (Note 6)........... 27,500 2,750 339,544
--------- -------- ----------- -----------
Balance, May 30, 1997..................... 6,110,480 611,048 10,500,213 65,969,270
Net loss.................................. (50,288,871)
Shares issued under employee stock
purchase plan (Note 7).................. 11,218 1,122 160,089
Exercise of stock options, including
related tax benefits (Note 6)........... 11,500 1,150 140,613
--------- -------- ----------- -----------
Balance, May 29, 1998..................... 6,133,198 $613,320 $10,800,915 $15,680,399
========= ======== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 29
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------
MAY 29, MAY 30, MAY 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. ($50,288,871) ($ 3,166,241) ($21,707,744)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Loss on disposal of fresh pork division (Note 13)......... 39,318,597
Loss on early extinguishment of debt (Note 14)............ 1,823,498
Depreciation.............................................. 16,748,890 16,610,090 14,539,477
Amortization.............................................. 839,300 839,300 839,300
Loss on disposition of property, plant and equipment...... 3,097,263 631,652 13,568
Provision for losses on accounts receivable............... (111,698) 339,055 133,951
Gain on sale of long-term investments..................... (627,802)
(INCREASE) DECREASE IN ASSETS:
Accounts receivable....................................... 2,165,169 17,681,337 (13,260,829)
Inventories............................................... 5,349,881 (8,852,121) (2,949,079)
Refundable income taxes................................... (632,323) 11,490,330 (10,124,099)
Prepaid expenses and other assets......................... 3,429,079 (2,920,437) (3,397,344)
Deferred income taxes..................................... (2,771,052) (3,021,000) 23,000
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable.......................................... (9,967,733) (6,390,564) 15,027,415
Accrued liabilities....................................... 1,303,523 1,706,752 (6,258,669)
Income taxes payable...................................... (1,425,403) 1,425,403
Other noncurrent liabilities.............................. (344,326) 3,675,000
------------ ------------ ------------
Total adjustments......................................... 58,822,665 33,214,797 (6,041,111)
------------ ------------ ------------
Net cash provided by (used in) operating activities....... 8,533,794 30,048,556 (27,748,855)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of Wilson, net of cash acquired
(Note 11)............................................... (64,630,873)
Capital expenditures...................................... (10,174,102) (11,602,699) (38,604,784)
Proceeds from sale of property, plant and equipment....... 2,696,525 1,905,568 2,712,129
Proceeds from sale of long-term investments............... 4,484,005
------------ ------------ ------------
Net cash used in investing activities..................... (7,477,577) (9,697,131) (96,039,523)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 75,000,000 17,250,000 42,500,000
Net proceeds (repayments) long-term credit facilities..... (14,343,564) (17,100,000) 79,712,564
Proceeds from common stock sold to company officer........ 3,000,346
Principal payments on long-term debt...................... (62,462,038) (9,098,385) (5,928,116)
Net borrowings (payments) under lines of credit........... (14,700,000) 8,740,000
Payments for debt issue costs............................. (2,509,823)
Proceeds from employee stock purchase plan................ 161,211 178,647 241,838
Proceeds from stock options exercised, including related
tax benefits............................................ 141,763 342,294
Dividends paid............................................ (404,174)
------------ ------------ ------------
Net cash provided by (used in) financing activities....... (4,012,451) (20,127,098) 124,862,112
------------ ------------ ------------
Net increase (decrease) in cash........................... (2,956,234) 224,327 1,073,734
Cash and cash equivalents, beginning of year.............. 6,028,698 5,804,371 4,730,637
------------ ------------ ------------
Cash and cash equivalents, end of year.................... $ 3,072,464 $ 6,028,698 $ 5,804,371
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amounts capitalized.................... $ 11,980,278 $ 12,164,297 $ 8,324,648
============ ============ ============
Income taxes paid (refunded), net....................... ($ 806,074) ($12,194,253) ($ 2,858,701)
============ ============ ============
NONCASH INVESTING ACTIVITIES:
Notes payable issued in conjunction with new debt
financing............................................... $ 2,200,000
============
Capital lease obligations................................. $ 1,016,004 $ 256,852
============ ============
ACQUISITION:
The Company purchased substantially all of the assets of
Wilson (Note 11)
In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired........................... $ 75,571,743
Cash paid............................................... (64,630,873)
------------
Liabilities assumed..................................... $ 10,940,870
============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 30
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS:
The Company is engaged in the production and sale of bacon, hot dogs, lunch
meats, hams, smoked sausage and turkey products. The Company announced in June
1998, its decision to exit the fresh pork business, see Note 13 for information
relating to its discontinued operations. The Company sells its products
principally to wholesalers, supermarkets and other manufacturers throughout the
United States and in selected international markets.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits and
short-term investments with a maturity of three months or less at the date of
acquisition.
SHORT-TERM INVESTMENTS:
Short-term investments are those with a maturity in excess of three months
at the date of acquisition and are valued at cost, which approximates market.
INVENTORIES:
Substantially all inventories are stated at the lower of last-in, first-out
("LIFO") cost or market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Upon retirement or
disposal of property, plant and equipment, the cost and accumulated depreciation
are removed from the accounts, and any gain or loss is included in other income.
Depreciation is computed on the straight-line basis over the assets' estimated
useful lives, ranging from 3 to 10 years for machinery and equipment and 20 to
40 years for buildings and improvements. The cost of repairs and maintenance is
charged against results of operations as incurred. Inactive assets held for sale
are recorded at the lower of net book value (cost less accumulated depreciation)
or fair value less costs to sell. The Company capitalized interest incurred on
debt during the course of major projects which approximated $1,092,000 during
fiscal 1996.
INTANGIBLE ASSETS:
The Company's intangible assets consist of trademarks and tradenames and
are amortized on a straight-line basis over their estimated useful lives,
determined to be 40 years. Intangible assets are periodically reviewed for
impairment based on an assessment of estimated future cash flows.
F-6
<PAGE> 31
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
COMMODITY OPTIONS AND FORWARD CONTRACTS:
The Company uses a variety of commodity option and forward contracts in an
effort to minimize the potential adverse effects from raw material market price
level changes. Gains and losses from contracts that hedge firm commitments are
deferred and recognized as part of the economic basis of the transactions
underlying the commitments when the associated hedged transaction occurs. Risk
management and hedging activities are often utilized with forward sales
contracting, with forward raw material procurement and with margin management.
The majority of the Company's finished product sales are not hedged, as they are
manufactured from raw material procured from current production. Hedging
activities accounted for approximately 5 percent of the total quantities of
annual processed meats tonnage sold.
EARNINGS PER SHARE OF COMMON STOCK:
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share," that was issued in February 1997. The new
Standard requires presentation of basic and diluted earnings per share. Basic
earnings per share of common stock are based on the weighted average number of
common shares outstanding during each respective fiscal year. Diluted earnings
per share are based upon the weighted average number of common shares
outstanding after giving effect to all dilutive potential common shares
including shares issuable under employee stock option plans and convertible
subordinated debentures during each respective fiscal year. As a result of the
Company's loss from continuing operations during fiscal years 1998 and 1996
respectively, the calculation of diluted earnings per share excluded the
potential common shares issuable under employee stock option plans and
convertible subordinated debentures as they would have an antidilutive effect on
earnings per share. The weighted average number of shares outstanding for 1998,
1997 and 1996 were 6,123,176, 6,002,786 and 5,778,559 respectively. The fully
diluted shares outstanding for 1997 was 6,073,747.
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 29, 1998 and May 30, 1997 are for 52-week periods.
RECLASSIFICATIONS:
Certain amounts from prior years have been reclassified to conform with the
current year presentations.
2. INVENTORIES:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
At lower of cost or market:
Supplies.................................................. $10,815,336 $ 9,447,180
Raw materials............................................. 11,308,353 21,911,451
Work in process........................................... 3,053,048 4,016,547
Finished goods............................................ 36,470,713 41,529,153
----------- -----------
61,647,450 76,904,331
Less LIFO reserve........................................... 2,932,000 11,789,000
----------- -----------
$58,715,450 $65,115,331
=========== ===========
</TABLE>
F-7
<PAGE> 32
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
2. INVENTORIES -- CONTINUED
The LIFO method of accounting for inventories had the effect (after income
taxes) of reducing net loss by approximately $5,757,000 ($.94 per share) and
increasing net income by approximately $3,182,000 ($.53 per share) and
increasing net loss by approximately $8,927,000 ($1.54 per share) for the years
ended May 29, 1998, May 30, 1997 and May 31, 1996, respectively.
3. ACCRUED LIABILITIES:
Included within accrued liabilities are employee benefits representing
self-insured programs of $6,346,483 and $4,707,813 at May 29, 1998 and May 30,
1997, respectively.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 29, MAY 30,
1998 1997
------- -------
<S> <C> <C>
A. Revolving credit agreement............................... $ 48,556,436 $ 62,900,000
B. Term notes............................................... 75,000,000
B. Private placements notes................................. 59,453,846
C. Revenue bonds............................................ 8,196,355 9,455,225
D. Subordinated debentures.................................. 17,250,000 17,250,000
E. Obligations under capital leases......................... 3,227,211 4,559,213
F. Other note............................................... 2,979,367 1,076,702
------------ ------------
155,209,369 154,694,986
Less current portion..................................... 6,959,824 4,566,445
------------ ------------
$148,249,545 $150,128,541
============ ============
</TABLE>
A. On April 16, 1998 the Company executed a new three-year loan and
security agreement with a consortium of participating financial institutions;
the agreement expires on April 15, 2001. The new loan and security agreement
provides for borrowings and issuance of letters of credit of up to $85 million
under a revolving line of credit facility, subject to a borrowing base
limitation measured by eligible inventory and accounts receivable of the
Company, with an additional $10 million for meeting seasonal demands and a $75
million term-loan. Proceeds from the $75 million term-loan were used to pay down
$59.4 million of private placement notes with the remaining $15.6 million to pay
down borrowings under the Company's revolving credit agreement and to cover
certain costs associated with the financing. Borrowings under the revolving
credit facility will be at either the prime rate or LIBOR plus 2.25 percent.
Borrowings under the term-long will be at either the prime rate plus .5
percent or LIBOR plus 2.75 percent. Interest is payable monthly under both the
new revolving credit facility and term-loan. The commitment fee on the unused
portion of the revolving credit facility is .375 percent per annum. The weighted
average interest rates applicable to revolving credit borrowings at May 29, 1998
and May 30, 1997 were 7.97 percent and 7.63 percent, respectively. The rate of
interest on the term notes at May 29, 1998 was 8.45 percent. At May 29, 1998,
the Company had outstanding letters of credit totaling approximately $8,200,000
which serve as collateral for the limited obligation revenue bond issue and
various self insured agreements. Unused lines of credit of $29.1 million were
available at May 29, 1998, under the borrowing base formula the amount of
available unused lines of credit was $13.1 million. Under the term-loan the
first principal payment of $781,250 is due on April 1, 1999, with monthly
installments of $781,250 due thereafter until maturity, with any remaining
balance due at maturity.
F-8
<PAGE> 33
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
4. LONG-TERM DEBT -- CONTINUED
The Company's debt is secured by substantially all of the Company's assets.
The Company's new three-year loan and security agreement, contains financial
covenants with respect to consolidated net worth, EBITDA and fixed charge
coverage. The Company was not in compliance with its fixed charge coverage ratio
at May 29, 1998. The net worth and EBITDA ratio covenants under the new loan and
security agreement become effective at the end of the Company's first quarter of
fiscal 1999. In addition, among other things, the agreement limits borrowings,
capital expenditures, other indebtedness and investments, and does not allow the
payment of cash dividends or repurchase of the Company's common stock.
B. As a result of the new loan and security agreement, as discussed in Note
4A above, the Company retired the entire balance of the private placement note
obligations.
C. At May 29, 1998, 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, has an outstanding principal balance of
$1,275,000 with varying quarterly principal payments due July 1, 1998 through
January 1, 2000, and quarterly interest at 81.1 percent of the current prime
rate (at May 29, 1998 the rate was 6.89 percent).
The second outstanding issue, which is referred to as the limited
obligation revenue bond, has an outstanding principal balance of $5,500,000 with
monthly interest payments at a variable rate and the principal due at maturity
on December 1, 2005. The variable rate of interest paid on the second issue
during the month of May 1998 averaged 4.3 percent.
The third outstanding issue referred to as the economic development revenue
bond, has an outstanding principal balance of $1,421,355 with varying monthly
principal and interest payments through maturity on June 30, 2000, bearing
interest at a fixed rate of 6 percent per annum.
The first and third bond issues are collateralized by property, plant and
equipment. The second bond issue is collateralized by a $5,600,000 letter of
credit. The letter of credit is secured by a first lien on substantially all of
the Company's assets.
The Company's industrial revenue and economic revenue bond agreements
contain restrictive covenants that include the maintenance of a minimum level of
consolidated tangible net worth, as defined, and of certain financial ratios.
D. On March 25, 1997, the Company completed a public offering of
$17,250,000 of Convertible Subordinated Debentures due April 1, 2007, bearing
interest at a fixed rate of 9 percent per annum. Interest is payable
semi-annually on April 1 and October 1. The Debentures are convertible into
shares of the Company's Common Stock at any time prior to maturity, at a
conversion price of $18.75 per share. Accordingly, each $1,000 principal amount
of Debentures is convertible into 53.33 shares of Common Stock, for an aggregate
of 920,000 shares, representing approximately 13 percent of the outstanding
Common Stock after including the converted shares. The Debentures are redeemable
at the Company's option, at any time in whole or in part, except that the
Debentures may not be redeemed prior to April 1, 2000, unless the closing sale
price of the Common Stock equals or exceeds 140 percent of the then current
conversion price for any 20 consecutive trading days.
The Debentures are subordinated to all existing and future senior
indebtedness of the Company. Although the Debentures are cross-defaulted with
the Company's existing secured indebtedness, the Debentures do not require the
Company to comply with any other financial covenants.
E. The obligations under capital leases are at fixed rates ranging from 5.5
percent to 11 percent and are collateralized by property, plant and equipment.
F-9
<PAGE> 34
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
4. LONG-TERM DEBT -- CONTINUED
F. The Company's other notes is comprised of four various notes with
remaining outstanding principal balances ranging from $779,367 to $2,200,000 and
fixed annual interest rates in the range of 7% to 12%. The maturity dates of the
various notes range from April 16, 1999 to September 13, 2000.
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 AMENDMENT
On May 29, 1998, the Company was in non-compliance with certain financial
covenants relating to its loan and security agreement ( the "loan agreement")
with a consortium of lenders (the "lender group"). On September 10, 1998, the
lender group waived the Company's past non-compliance with such financial
covenants and amended certain covenants and other terms and conditions of the
loan agreement. The following is a description of the significant changes to the
loan agreement as a result of the amendment:
1. The maximum amount available under the revolving loan was reduced
by $15 million to $70 million, with an additional $10 million available to
meet seasonal demands.
2. The Company made a principal payment of $5 million on the term
loan, reducing the principal balance outstanding of $70 million.
3. The maturity date under the loan agreement was changed from April
15, 2001 to August 31, 1999.
4. The interest rate on the revolving loan will increase, so that the
Company may borrow either at the prime rate plus .5 percent or LIBOR plus 3
percent at the option of the Company.
5. The interest rate on the term loan will increase, so that the
Company may borrow either at the prime rate plus 1 percent or LIBOR plus
3.25 percent at the option of the Company.
6. The Company will make payments of certain fees to the lender group
either in cash or by delivery of warrants to purchase the Company's common
stock or a combination thereof, at the Company's option, as follows:
<TABLE>
<CAPTION>
PAYMENT DATE AMOUNT EARNED DATE
------------ ------ -----------
<S> <C> <C>
4/30/99................................................ $ 500,000 6/30/99
6/30/99................................................ $1,000,000 8/31/99
8/31/99................................................ $1,500,000 8/31/99
</TABLE>
If the Company elects to make any portion of the payment through issuance
of warrants to the lender group, the number of shares of common stock of the
Company subject to the warrants will be determined by dividing the amount of the
payment to be paid with warrants by a $7.50 per share conversion price. In
total, warrants for up to 400,000 shares of common stock may be issued by the
Company to make such payments.
The aggregate maturities of long-term debt, as amended, (excluding
obligations under capital leases) during the five years subsequent to May 29,
1998 are: 1999; $10,426,854, 2000; $118,570,243, 2001; $235,061, 2002; $0, and
2003; $0.
F-10
<PAGE> 35
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
5. INCOME TAXES:
The Company's provision (benefit) for income taxes was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Currently payable (benefit):
Federal...................................... $ (131,000) $ 3,282,000 $(6,287,000)
State and local..............................
----------- ----------- -----------
Total currently payable (benefit)............ (131,000) 3,282,000) (6,287,000)
Deferred:
Federal and state............................ (1,830,000) (3,021,000) (2,911,000)
----------- ----------- -----------
Total benefit................................ $(1,961,000) $ 261,000) $(9,198,000)
=========== =========== ===========
</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 29,
1998 and May 30, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation.......................... $ 8,454,000 $7,875,000
Employee benefit plans................ $ 2,380,000 $ 1,765,000
Bad debt expense...................... 286,000 333,000
Capital leases........................ 80,000 73,000
Restructuring charge.................. 1,827,000 1,875,000
Estimated losses on assets held for
disposal............................ 338,000 197,000
Amortization of intangibles........... 1,574,000 1,049,000
Credit carryforward................... 4,564,000 5,089,000
Tax benefit of net operating loss
carryforward........................ 5,934,000 1,617,000
Loss on disposal...................... 15,786,000
Pension expense....................... 320,000
All other............................. 499,000 58,000 103,000 393,000
Valuation allowance................... (10,000,000)
------------ ----------- ----------- ----------
Total deferred taxes............. $ 21,614,000 $10,486,000 $10,979,000 $9,390,000
============ =========== =========== ==========
</TABLE>
F-11
<PAGE> 36
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
5. INCOME TAXES -- CONTINUED
A reconciliation of the provision for income taxes is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- --------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Federal income tax (benefit) at
statutory
rate.................................. $(1,566,000) (35) $ 580,000 35 $(8,493,000) (35)
State and local income taxes, net of
federal income tax benefit............
Lower tax rate attributable to foreign
sales corporation..................... (83,000) (2) (55,000) (3) (110,000)
Nondeductible expenses.................. 225,000 5 138,000 8
Utilization of tax credits.............. (525,000) (12) (465,000) (28) (883,000) (4)
Other................................... (12,000) 63,000 4 278,000 1
----------- --- --------- --- ----------- ---
$(1,961,000) (44) $ 261,000 16 $(9,198,000) (38)
=========== === ========= === =========== ===
</TABLE>
The credit carryforward of $4,564,000 for which the tax benefit has been
recognized, consists of general business credits of $2,527,000 which expire
between the years 2008 and 2013 and alternative minimum tax credit carryforwards
of $2,037,000, which can be carried forward indefinitely. The NOL carryforward
of $22,096,000 on a pre-tax basis will expire between years 2012 and 2013.
The Company has established a valuation allowance in accordance with the
provision of FASB Statement No. 109, Accounting for Income Taxes. The allowance
was recorded on the Statement of Operations as a reduction of the tax benefits
related to the loss on disposal of the discontinued operations. The Company will
continue to review the adequacy of the valuation allowance and will recognize
the future tax benefits only as reassessment indicates that it is more likely
than not that the benefits will be realized.
6. STOCK OPTION PLANS:
The Company's 1996 Employee Stock Option Plan authorized the Company's
Stock Option Committee to grant options for up to 600,000 shares of the
Company's common stock to present or prospective employees. At May 29, 1998,
there were 298,500 options granted but not exercised at $15.81 and $10.25 per
share and 301,500 shares remained to be granted under the 1996 Plan.
At May 29, 1998, there were 632,500 options granted but not exercised at
prices of $10.25, $17.00, $23.00 and $26.00 per share and 141,000 options
granted but not exercised at prices of $2.56 and $19.67 per share under the 1990
and 1982 Employee Stock Option Plans, respectively. Under the 1990 and 1982
plans no shares remain to be granted.
The Company's Stock Option Committee may designate any requirements
regarding option price, waiting period or an exercise date for options granted
under the plans, except that incentive stock options may not be exercised at
less than the fair market value of the stock on the date of grant, and no option
may remain outstanding for more than 10 years. Under all plans, the exercise
price of each option equals the market price of the Company's common stock on
the date of grant. Under all plans, the options granted are immediately
exercisable.
F-12
<PAGE> 37
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
6. STOCK OPTION PLANS -- CONTINUED
The following is a summary of options granted under the plans:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- -------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES OPTION PRICES SHARES OPTION PRICES SHARES OPTION PRICES
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning... 870,300 $16.57 646,300 $18.91 484,550 $19.76
Exercised............ (11,500) $10.25 (27,500) $10.25
Canceled or
terminated......... (30,800) $19.63 (16,000) $16.02 (33,750) $20.16
Granted.............. 244,000 $15.81 267,500 $10.25 195,500 $17.00
--------- ------- -------
Balance, ending...... 1,072,000 $16.38 870,300 $16.57 646,300 $18.91
========= ======= =======
</TABLE>
At May 29, 1998, under all plans, the range of exercise prices on
outstanding options is $2.56 to $26.00 per share with a weighted average
remaining contractual life of 7.0 years.
At May 29, 1998, there were 47 participants in the 1996 Employee Stock
Option Plan, 41 participants in the 1990 Employee Stock Option Plan and 11
participants in the 1982 Employee Stock Option Plan.
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the Company
will continue to apply APB Opinion 25 and related interpretations in accounting
for its stock option plans and, accordingly, does not recognize compensation
cost. If compensation cost for stock option grants had been determined based on
the fair value method as prescribed by SFAS No. 123, net loss and loss per share
would have been increased to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Reported net loss........................................... $(50,288,871) $(3,166,241)
Pro forma net loss, using SFAS No. 123...................... $(51,416,549) $(4,022,228)
Loss per share:
Reported.................................................. $(8.21) $(.53)
Pro forma, using SFAS No. 123............................. $(8.49) $(.67)
Weighted-average fair value of options granted.............. $ 7.11 $4.92
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
valuation model. Under the model the annualized assumptions used for options
granted in fiscal years 1998 and 1997, respectively, was as follows: Risk-free
interest rates of 5.47 percent and 6.32 percent, dividend yields equal to zero
percent and a volatility factor for the expected market price of the Company's
common stock of 42.3 percent. The weighted-average expected life of options for
the 1998 and 1997 grants is five years.
7. STOCK PURCHASE PLAN:
The Company has an Employee Stock Purchase Plan ("Plan") where employees
may subscribe, through payroll withholdings, to purchase shares of the Company's
common stock at a discount. The discounted price is equal to 85 percent of the
average market value of the common stock. The average market value is computed
using the closing prices at the beginning and end of each calendar quarter.
Employees may not purchase, under the Plan, in excess of $25,000 in any one
year. Under the Plan, the Company is authorized to issue up to 400,000 shares of
its common stock, of which 351,887 have not been issued.
F-13
<PAGE> 38
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
7. STOCK PURCHASE PLAN -- CONTINUED
Transactions under the Employee Stock Purchase Plan are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUE PRICE RANGE
--------- -----------------
<S> <C> <C>
Shares issued during the year ended May 29, 1998............ 11,218 $13.17 - $15.62
Shares issued during the year ended May 30, 1997............ 16,968 $ 9.56 - $12.54
Shares issued during the year ended May 31, 1996............ 15,482 $12.32 - $17.85
</TABLE>
8. PENSION PLANS:
The Company and its subsidiaries have several defined benefit pension plans
covering substantially all of their nonsalaried employees. Benefits under these
plans are based on the employee's years of service, and the benefit obligations
are based upon the employee's expected date of retirement. Plan assets are
invested in corporate and government bonds, common stocks and a bank money
market fund. The Company's general funding policy is to contribute amounts
deductible for federal income tax purposes.
Net periodic pension cost for 1998, 1997 and 1996 includes the following
benefit and cost components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost....................................... $ 385,194 $ 387,204 $ 346,101
Interest cost...................................... 799,850 780,947 711,024
Actual return on plan assets....................... (1,855,611) (990,090) (1,474,259)
Net amortization and deferral...................... 885,630 131,169 738,998
----------- --------- -----------
Net periodic pension cost.......................... $ 215,063 $ 309,230 $ 321,864
=========== ========= ===========
</TABLE>
As of May 29, 1998 and May 30, 1997, the funded status of the defined
benefit plans, using the actuarial present value of the benefit obligation, is
as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Vested benefit obligation................................... $11,835,775 $10,126,657
Projected and accumulated benefit obligation................ 12,090,945 10,698,129
Plan assets at fair value................................... 13,740,481 11,504,526
----------- -----------
Projected benefit obligation less than assets............... (1,649,536) (806,397)
Unrecognized net gain....................................... 376,074 137,192
Unrecognized net transition asset........................... 148,893 176,704
Unrecognized prior service cost............................. (37,798) (42,396)
----------- -----------
Prepaid pension cost........................................ $(1,162,367) $ (534,897)
=========== ===========
Actuarial assumptions used for 1998, 1997 and 1996 are:
Discount rate.......................................... 7%
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 $122,000, $134,000 and $206,000 in 1998, 1997 and 1996,
respectively.
F-14
<PAGE> 39
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 30, 1998, MAY 31, 1997 AND MAY 26, 1996
9. COMMITMENTS:
OPERATING LEASES:
The Company leases transportation, manufacturing equipment and office space
under several operating leases expiring through 2005. The majority of the leases
contain purchase options at stated amounts or fair market value. Rent expense
under all operating leases amounted to approximately $7,747,000, $7,792,000 and
$8,203,000 for the years ended 1998, 1997 and 1996, respectively. Total future
minimum rentals under noncancelable operating leases as of May 29, 1998,
including those discussed below are:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- ------
<S> <C>
1999...................................................... $5,786,000
2000...................................................... 3,008,000
2001...................................................... 1,580,000
2002...................................................... 1,308,000
2003...................................................... 974,000
Thereafter................................................ 1,294,000
</TABLE>
The Company maintains inventory at a freezer warehouse that is 75 percent
owned by an officer and director of the Company. Additionally, the Company rents
a portion of the freezer warehouse for use as a distribution center. Currently,
the Company is operating under a one-year lease option that expires in January
1999. Freezer warehouse rent expense amounted to $882,000 for the years ended
1998, 1997 and 1996. Storage and handling expenses paid to this freezer
warehouse amounted to approximately $1,953,000, $1,482,000 and $1,218,000 for
the years ended 1998, 1997 and 1996, respectively.
MARKETING COMMITMENT:
In December 1997 the Company entered into a three-year agreement to sponsor
a NASCAR Winston Cup automobile racing team. The future minimum commitment
related to this marketing agreement is approximately, $2,716,000, $3,675,000,
$1,909,000 for the fiscal years 1999, 2000, and 2001 respectively. In addition,
the agreements specify various incentive payments tied to finishing position for
each race, Winston Cup series rankings, and to the increase in the price of the
Company's stock.
SUBSEQUENT EVENT -- SUPPLY AND SUBORDINATED DEBT AGREEMENT
On September 10, 1998, the Company entered into a five year agreement with
a major U.S. meat packer that slaughters hogs and cattle. Under the agreement,
the Company has agreed to purchase from this meat packer at least 80 percent of
its total raw material requirements for boneless hams, bone-in hams, pork
bellies and other selected pork and beef products. The raw material purchases
will be priced daily based upon market formulas.
In addition, the meat packer has loaned the Company $10 million pursuant to
the terms of a convertible debenture. The debenture bears interest at a rate of
6.5 percent per year, payable quarterly. The principle on the debenture is due
September 9, 2003.
The debenture can be converted into shares of the Company's common stock at
any time prior to the close of business on September 9, 2003, at a conversion
price of $14.00 per share. The $10 million debenture is unsecured; however, it
is senior in terms of payment priority to the Company's $17.25 million
subordinated debentures due April 1, 2007.
F-15
<PAGE> 40
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
10. COMMON STOCK ISSUED:
The Company sold to its Chairman of the Board of Directors, who is also a
significant shareholder of the Company, 279,883 newly issued shares of the
Company's common stock for an approximate purchase price of $3.0 million. This
sale was in accordance with the long-term debt agreements entered into on
September 11, 1996.
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. During
the next two years, Foodbrands has the right to receive from the Company up to
an additional $10 million in accordance with what is being referred to as an
Earnout Agreement, in the event of increases in the market price of the
Company's common stock. No amounts have been paid to Foodbrands under the
Earnout Agreement. The Earnout Agreement stipulates if the Company's common
stock ceases to be publically traded the entire $10 million would become
currently payable.
12. RESTRUCTURING CHARGES:
During the fourth quarter of fiscal 1997, the Company recorded a pre-tax
restructuring charge to operations of $5.0 million for an estimate of future
costs associated with the suspension of a joint Production Agreement. During
fiscal 1998, the Company recorded an additional $2.6 million pre-tax charge
resulting from its termination of the Production Agreement. The suspension of
the Production Agreement resulted in the planned closing of a processed meats
facility in Council Bluffs, Iowa, where the Company had some of its boneless ham
products produced. The Iowa plant had been operated under the Production
Agreement between the Company and another major meat packing company (Producer).
Pursuant to the Production Agreement, the Producer constructed a ham production
facility and the Company furnished all of the production equipment to be used in
such facility. In addition, the Producer was obligated to produce at such
facility, on an exclusive basis, all boneless ham products which the Company
would have required. In return, the Company had agreed to pay and/or reimburse
the Producer for all operating and fixed costs incurred at the facility and to
pay the Producer a fee of approximately $1,375,000 per year during the term of
the agreement. The Production Agreement had an initial term expiring on June 6,
2001. Production of the Company's boneless ham product lines will be
consolidated with its new Ponca City plant operations. The restructuring charges
consisted of $5.2 million related to future annual contractual obligations and
$2.4 million related to other costs and carrying charges associated with the
shutdown and for losses on disposal of machinery and equipment, for which the
long-term accrued portion has been included in other noncurrent liabilities.
During the fourth quarter of fiscal 1998, in addition to the $2.6 million
pre-tax charge referred to above, the Company recorded an additional $1.0
million pre-tax charge associated with the write-off of assets as the results of
the discontinuance of a product-line unrelated to the Production Agreement.
13. DISCONTINUED OPERATIONS:
FISCAL 1998:
In May 1998, the Company formalized plans to exit its fresh pork business.
The fresh pork facility was closed in July, 1998. The Company recorded in the
fourth quarter an after tax charge of $39.3 million related to the disposal of
its fresh pork operations. Included in the gross charge is an estimated pre-tax
loss from operations during the phase out period of $5.0 million. Corporate
office expenses and interest costs, historically allocated and charged to the
fresh pork operations, were reversed and allocated back to continuing operations
F-16
<PAGE> 41
THORN APPLE VALLEY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
13. DISCONTINUED OPERATIONS -- CONTINUED
as these expenses were not considered to be directly attributable to
discontinued operations. Interest on borrowings under the Company's general
credit facilities was allocated to discontinued operations based upon the fresh
pork operations' net working capital needs. Interest expense allocated to fresh
pork operations totaled $2,007,330, $1,928,122 and $1,364,699 for fiscal years
1998, 1997 and 1996, respectively. The consolidated financial statements and
related notes have been restated for all years presented to separately report
the fresh pork discontinued operations.
Net sales of the discontinued fresh pork operation are as follows:
<TABLE>
<CAPTION>
MAY 29, 1998 MAY 30, 1997 MAY 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................................... $319,663,437 $353,586,285 $355,014,747
============ ============ ============
</TABLE>
The total assets of the discontinued fresh pork operation at May 29, 1998,
approximated $27 million; and consisted of receivables, inventory and net
property, plant and equipment. Without regards to the shutdown provisions,
current liabilities at May 29, 1998 were approximately $6.3 million.
14. EXTRAORDINARY CHARGE:
In connection with the new financing agreement entered into on April 16,
1998, the Company recognized an extraordinary pre-tax loss of $2.8 million. The
extraordinary loss primarily resulted from a "make whole" provision ($2.2
million) contained in the Company's private placement notes that were retired
using the proceeds received under its new financing facility (see Note 4A). The
remaining $.6 million of the loss related to the write-off of unamortized debt
issue costs.
15. SUBSEQUENT EVENT -- INTERNATIONAL UNCERTAINTY
The Company exports a significant portion of its hot dog production to
Russia. As a result of recent economic and political instability, including the
rapid devaluation of its currency, the Company's continued ability to transact
business in this region is uncertain. As of September 9, 1998, the Company had
inventory and accounts receivable of approximately $13 million related to the
production and sale of Russian products. At this time, the Company is unable to
predict if it will sustain losses related to these assets.
F-17
<PAGE> 42
Year Ended
Form 10-K THORN APPLE VALLEY, INC. AND SUBSIDIARIES May 29, 1998
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 29, 1998, MAY 30, 1997 AND MAY 31, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- ---------- ---------------- ---------- ---------
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER ACCOUNTS-- (A) AT END
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS OF PERIOD
-------------- ---------- ---------- ---------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended May 29, 1998............ $888,500 $111,698 $238,398 $761,800
Year ended May 30, 1997............ $621,800 $356,055 $ 89,355 $888,500
Year ended May 31, 1996............ $789,100 $ 38,673 $205,973 $621,800
</TABLE>
Note A. Write-off of uncollectible accounts, net of recoveries.
F-18
<PAGE> 43
Year Ended
Form 10-K THORN APPLE VALLEY, INC. AND SUBSIDIARIES May 29, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- - ----------- ----
<S> <C> <C>
(3) (a) Restated Articles of Incorporation.
(b) Amendment to Restated Articles of Incorporation.
(c) Second Amendment to Restated Articles of Incorporation.
(d) By-laws, as amended to date.
(e) First Amendment to By-Laws of the Company.
(10) Material Contracts
(a) Bond Purchase Agreement, dated as of July 1, 1984, among The
Onslow County Industrial Facilities and Pollution Control
Financing Authority, Branch Banking and Trust Company and
the Company.
(b) Loan Agreement, dated as of July 1, 1984, between The Onslow
County Industrial Facilities and Pollution Control Financing
Authority and the Company.
(c) Promissory Note in the principal amount of $6,000,000, dated
July 1, 1984, from the Company payable to The Onslow County
Industrial Facilities and Pollution Control Financing
Authority.
(d) Security Agreement, dated as of July 1, 1984, between Branch
Banking and Trust Company and the Company.
(e) Guaranty Agreement, dated as of July 1, 1984, from the
Company to Branch Banking and Trust Company.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) Supply Agreement, dated May 30, 1995, by and among Wilson
Foods Corporation and Foodbrands America, Inc., Dixie Foods
Company and the Company.
(k) Transition Service Agreement, dated May 30, 1995, by and
between Foodbrands America, Inc. and the Company.
(l) Note Agreement, dated as of October 1, 1994, by and between
the Company and Allstate Life Insurance Company relating to
$8,000,000 principal amount 8.42% Senior Notes due October
1, 2003.
(m) Change of Control Agreement, dated February 24, 1998,
between Edward E. Boan and Thorn Apple Valley, Inc.
</TABLE>
<PAGE> 44
Year Ended
Form 10-K THORN APPLE VALLEY, INC. AND SUBSIDIARIES May 29, 1998
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- - ----------- ----
<C> <S> <C> <C>
(n) Change of Control Agreement, dated February 24, 1998,
between Keith Jahnke and Thorn Apple Valley, Inc.
(o) Change of Control Agreement, dated February 24, 1998,
between Louis Glazier and Thorn Apple Valley, Inc.
(p) Change of Control Agreement, dated February 24, 1998,
between Joel Dorfman and Thorn Apple Valley, Inc.
(q) Loan and Security Agreement, dated as of April 16, 1998,
between the Company, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as Administrative Agent and as a Lender, Heller
Financial, Inc., as Collateral Agent, as Documentation Agent
and as a Lender, Harris Trust and Savings Bank, as Co-Agent
and as a Lender, and the other Lenders from time to time
party thereto.
(r) Waiver and Amendment No. 1 to Loan and Security Agreement,
dated as of September 10, 1998, by and among Heller
Financial, Inc., as a Lender and as Collateral Agent (the
"Collateral Agent") and Documentation Agent (the
"Documentation Agent") for the Lenders, Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as a Lender and as Administrative Agent (the
"Administrative Agent") for the Lenders, Harris Trust and
Savings Bank, as a Lender and a Co-Agent (the "Co-Agent")
for the Lenders, the other Lenders party thereto and Thorn
Apple Valley, Inc.
(s) $10,000,000 6 1/2 % Convertible Debenture, due September 9,
2003, between Thorn Apple Valley, Inc. and IBP, Inc.
(21) Subsidiaries of the registrant.
(23) Consent of PricewaterhouseCoopers LLP.
(27) Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10(q)
LOAN AND SECURITY AGREEMENT
DATED AS OF APRIL 16, 1998
AMONG
THORN APPLE VALLEY, INC.,
AS BORROWER,
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH,
AS ADMINISTRATIVE AGENT AND AS A LENDER,
HELLER FINANCIAL, INC.,
AS COLLATERAL AGENT, AS DOCUMENTATION AGENT AND AS A LENDER,
HARRIS TRUST AND SAVINGS BANK,
AS CO-AGENT AND AS A LENDER,
AND THE OTHER LENDERS FROM TIME TO TIME PARTY HERETO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS...........................................................................................2
1.1. Certain Defined Terms...............................................................................2
1.2. Accounting Terms...................................................................................24
1.3. Other Definitional Provisions......................................................................24
SECTION 2. LOANS AND COLLATERAL.................................................................................25
2.1. Loans..............................................................................................25
2.2. Interest...........................................................................................39
2.3. Fees...............................................................................................41
2.4. Payments and Prepayments...........................................................................43
2.5. Term of this Agreement.............................................................................45
2.6. Statements.........................................................................................45
2.7. Grant of Security Interest.........................................................................46
2.8. Capital Adequacy and Other Adjustments.............................................................46
2.9. Taxes..............................................................................................47
2.10. Required Termination and Prepayment...............................................................49
2.11. Optional Prepayment/Replacement of Agents or Lenders in Respect of Increased Costs................49
2.12. Compensation......................................................................................50
2.13. Booking of LIBOR Loans............................................................................50
2.14. Assumptions Concerning Funding of LIBOR Loans.....................................................50
SECTION 3. CONDITIONS TO LOANS AND LENDER LETTERS OF CREDIT.....................................................51
3.1. Conditions to Initial Funding......................................................................51
3.2. Conditions to All Fundings.........................................................................51
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES............................................................53
4.1. Organization, Powers, Capitalization...............................................................53
4.2. Authorization of Borrowing, No Conflict............................................................54
4.3. Financial Condition................................................................................54
4.4. Indebtedness and Liabilities.......................................................................54
4.5. Account Warranties.................................................................................54
4.6. Names..............................................................................................55
4.7. Locations; FEIN....................................................................................55
4.8. Title to Properties; Liens.........................................................................55
4.9. Litigation; Adverse Facts..........................................................................55
4.10. Payment of Taxes..................................................................................56
4.11. Performance of Agreements.........................................................................56
4.12. Employee Benefit Plans............................................................................56
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.13. Intellectual Property.............................................................................56
4.14. Broker's Fees.....................................................................................56
4.15. Environmental Compliance..........................................................................57
4.16. Solvency..........................................................................................58
4.17. Disclosure........................................................................................58
4.18. Insurance.........................................................................................59
4.19. Compliance with Laws..............................................................................59
4.20. Bank Accounts.....................................................................................59
4.21. Subsidiaries......................................................................................59
4.22. Employee Matters..................................................................................59
4.23. Governmental Regulation...........................................................................60
SECTION 5. AFFIRMATIVE COVENANTS................................................................................60
5.1. Financial Statements and Other Reports.............................................................60
5.2. Access to Accountants and Management...............................................................65
5.3. Inspection.........................................................................................65
5.4. Collateral Records.................................................................................66
5.5. Account Covenants; Verification....................................................................66
5.6. Collection of Accounts and Payments................................................................66
5.7. Endorsement........................................................................................67
5.8. Corporate Existence................................................................................67
5.9. Payment of Taxes...................................................................................67
5.10. Maintenance of Properties.........................................................................68
5.11. Compliance with Laws..............................................................................68
5.12. Further Assurances................................................................................68
5.13. Collateral Locations..............................................................................68
5.14. Bailees...........................................................................................69
5.15. Mortgages; Title Insurance; Surveys...............................................................69
5.16. Use of Proceeds and Margin Security...............................................................70
5.17. Compliance with PASA and PPFPA....................................................................70
5.18. Insurance.........................................................................................70
5.19. Environmental Reports.............................................................................72
5.20. Compliance with FSA...............................................................................72
5.21. Authorized Stock..................................................................................73
SECTION 6. FINANCIAL COVENANTS..................................................................................73
6.1. Net Worth..........................................................................................73
6.2. EBITDA.............................................................................................73
6.3. Capital Expenditure Limits.........................................................................74
6.4. Fixed Charge Coverage..............................................................................74
6.5. Availability.......................................................................................74
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 7. NEGATIVE COVENANTS...................................................................................74
7.1. Indebtedness and Liabilities.......................................................................75
7.2. Guaranties.........................................................................................75
7.3. Transfers, Liens and Related Matters...............................................................76
7.4. Investments and Loans..............................................................................77
7.5. Restricted Junior Payments.........................................................................77
7.6. Restriction on Fundamental Changes.................................................................77
7.7. Changes Relating to Subordinated Debt..............................................................77
7.8. Transactions with Affiliates.......................................................................78
7.9. Environmental Liabilities..........................................................................78
7.10. Conduct of Business...............................................................................78
7.11. Compliance with ERISA.............................................................................78
7.12. Tax Consolidations................................................................................78
7.13. Subsidiaries......................................................................................79
7.14. Fiscal Year.......................................................................................79
7.15. Press Release; Public Offering Materials..........................................................79
7.16. Bank Accounts.....................................................................................79
7.17. Certain Salaries..................................................................................79
SECTION 8. DEFAULT, RIGHTS AND REMEDIES.........................................................................79
8.1. Event of Default...................................................................................79
8.2. Suspension of Commitments..........................................................................83
8.3. Acceleration.......................................................................................83
8.4. Remedies...........................................................................................83
8.5. Appointment of Attorney-in-Fact....................................................................84
8.6. Limitation on Duty with Respect to Collateral......................................................85
8.7. Application of Proceeds............................................................................85
8.8. License of Intellectual Property...................................................................85
8.9. Waivers, Non-Exclusive Remedies....................................................................86
SECTION 9. AGENTS...............................................................................................86
9.1. Agents.............................................................................................86
9.2. Notice of Default..................................................................................92
9.3. Action by Agents...................................................................................92
9.4. Amendments, Waivers and Consents...................................................................92
9.5. Assignments and Participations in Loans............................................................93
9.6. Set Off and Sharing of Payments....................................................................95
9.7. Disbursement of Funds..............................................................................95
9.8. Settlements, Payments and Information..............................................................96
9.9. Dissemination of Information.......................................................................97
9.10. Discretionary Advances............................................................................97
9.11. Documentation Agent and Co-Agent..................................................................97
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 10. MISCELLANEOUS.......................................................................................98
10.1. Expenses and Attorneys' Fees......................................................................98
10.2. Indemnity.........................................................................................98
10.3. Notices...........................................................................................99
10.4. Survival of Warranties and Certain Agreements....................................................100
10.5. Indulgence Not Waiver............................................................................101
10.6. Marshaling; Payments Set Aside...................................................................101
10.7. Entire Agreement.................................................................................101
10.8. Severability.....................................................................................101
10.9. Lenders' Obligations Several; Independent Nature of Lenders' Rights..............................102
10.10. Headings........................................................................................102
10.11. APPLICABLE LAW..................................................................................102
10.12. Successors and Assigns..........................................................................102
10.13. No Fiduciary Relationship; Limitation of Liabilities............................................102
10.14. CONSENT TO JURISDICTION.........................................................................103
10.15. WAIVER OF JURY TRIAL............................................................................103
10.16. Construction....................................................................................104
10.17. Counterparts; Effectiveness.....................................................................104
10.18. Confidentiality.................................................................................104
10.19. Illinois Collateral Protection Act..............................................................105
</TABLE>
iv
<PAGE> 6
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of April 16, 1998
and entered into among THORN APPLE VALLEY, INC., a Michigan corporation
("Borrower"), with its principal place of business at 26999 Central Park
Boulevard, Suite 300, Southfield, Michigan 48076, the financial institutions
listed on the signature pages hereof and their respective successors and
assignees who are eligible Assignees and have executed an Assignment and
Assumption Agreement which has been accepted by Agents (as defined below) (each
individually a "Lender" and collectively "Lenders"), COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, a New
York state chartered bank (in its individual capacity, "Rabobank"), with offices
at 245 Park Avenue, New York, New York 10167, for itself as a Lender and as
Administrative Agent for the Lenders, HELLER FINANCIAL, INC., a Delaware
corporation (in its individual capacity, "Heller"), with offices at 500 West
Monroe Street, Chicago, Illinois 60661, for itself as a Lender, as Collateral
Agent for the Lenders and as Documentation Agent for the Lenders and HARRIS
TRUST AND SAVINGS BANK (in its individual capacity, "Harris"), with offices at
111 West Monroe Street, Chicago, Illinois 60690, for itself as a Lender and as
Co-Agent for the Lenders. All capitalized terms used herein are defined in
Section 1 of this Agreement.
WHEREAS, Borrower desires that Lenders extend a credit
facility to provide working capital financing and to provide funds for other
general corporate purposes; and
WHEREAS, Borrower desires to secure its obligations under the
Loan Documents by granting to Collateral Agent, for the benefit of Agents and
Lenders, a security interest in and lien upon substantially all of the real and
personal property of Borrower; and
WHEREAS, each Subsidiary of Borrower (collectively, "Corporate
Guarantors") is willing to guaranty all of the obligations of Borrower to Agents
and Lenders under the Loan Documents and to grant to Collateral Agent, for the
benefit of Agents and Lenders, a security interest in substantially all of the
real and personal property of such Corporate Guarantor to secure such guaranty;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, Borrower, Agents and
Lenders agree as follows:
<PAGE> 7
SECTION 1. DEFINITIONS
1.1. Certain Defined Terms.
The following terms used in this Agreement shall have the
following meanings:
"Accounts" means all "accounts" (as defined in the UCC),
accounts receivable, contract rights and general intangibles relating thereto,
notes, drafts and other forms of obligations owed to or owned by Borrower
arising or resulting from the sale of goods or owed to or owned by Borrower or a
Transportation Subsidiary arising or resulting from the rendering of services.
"Additional Mortgaged Property" has the meaning assigned to
that term in subsection 5.15.
"Administrative Agent" means Rabobank, in its capacity as
administrative agent for Lenders under the Loan Documents, and any successor in
such capacity appointed pursuant to subsection 9.1(G).
"Administrative Questionnaire" means an Administrative
Questionnaire in the form of Exhibit A.
"Adjustment Date" means, with respect to each adjustment of
the Applicable Revolving Loan Margin or the Applicable Term Loan Margin, the
first day of the Fiscal Quarter next commencing after the Fiscal Quarter in
which the applicable financial statements were received. For example, the
Adjustment Date relating to the test completed with respect to the first Fiscal
Quarter of the 1999 Fiscal Year shall be the first day of the third Fiscal
Quarter of the 1999 Fiscal Year.
"Advertising Ineligible Deduction" means an amount determined
by Collateral Agent following each inspection conducted by Collateral Agent
pursuant to subsection 5.3 in respect of cooperative advertising credits given
by Borrower to its customers.
"Affiliate" means any Person (other than any Agent or any
Lender): (a) directly or indirectly controlling, controlled by, or under common
control with, any Loan Party; (b) directly or indirectly owning or holding
fifteen percent (15%) or more of any equity interest in Borrower; (c) fifteen
percent (15%) or more of whose stock or other equity interest having ordinary
voting power for the election of directors or the power to direct or cause the
direction of management, is directly or indirectly owned or held by Borrower; or
(d) which has a senior executive officer who is also a senior executive officer
of Borrower. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with") means the possession directly or indirectly of the power to
direct or cause the direction of
2
<PAGE> 8
the management and policies of a Person, whether through the ownership of voting
securities or other equity interest, or by contract or otherwise.
"Agents" means, collectively, the Administrative Agent, the
Collateral Agent, the Documentation Agent and the Co-Agent.
"Agent's Account" means ABA No. 0710-001-3, Account No.
52-98695 at The First National Bank of Chicago, One First National Plaza,
Chicago, Illinois 60670. Reference: Heller Business Credit for the benefit of
Thorn Apple Valley, Inc.
"Agreement" means this Loan and Security Agreement as it may
be amended, restated, supplemented or otherwise modified from time to time.
"Applicable Eligible Meat Inventory Percentage" means a
percentage equal to (a) seventy percent (70%) during the period from February 1
to and including August 1 of each year and (b) seventy-five percent (75%) at all
other times.
"Applicable Non-Use Fee Margin" means a rate equal to
three-eighths of one percent (0.375%); provided, that such rate shall be
adjusted, based on the Funded Debt to EBITDA Ratio as of the last day of the
first Fiscal Quarter of the 1999 Fiscal Year and as of the last day of each
Fiscal Quarter thereafter, as calculated pursuant to the financial statements
delivered pursuant to subsection 5.1(B) or (C), as applicable, as set forth
below:
<TABLE>
<CAPTION>
Funded Debt to Non-Use Fee Margin
EBITDA Ratio ------------------
------------
<S> <C>
Greater than or equal to 8.0:1.0 0.50%
Less than 8.0:1.00 and greater than or equal 0.50%
to 6.0:1.0
Less than 6.0:1.0 and greater than or equal to 0.375%
4.0:1.0
Less than 4.0:1.0 and greater than or equal to 0.25%
3.0:1.0
Less than 3.0:1.0 0.25%
</TABLE>
Each such adjustment shall take effect on the first day of the Fiscal Quarter
next commencing after the Fiscal Quarter in which the applicable financial
statements were received. For example, the adjustment resulting from the test
completed with respect to the first Fiscal Quarter of the 1999 Fiscal Year shall
be effective on the first day of the third Fiscal Quarter of the 1999 Fiscal
Year.
3
<PAGE> 9
"Applicable Revolving Loan Margin" means (a) with respect to
Base Rate Revolving Loans, a rate equal to zero percent (0%) and (b) with
respect to LIBOR Revolving Loans, a rate equal to two and one-quarter percent
(2.25%); provided, that such rates shall be adjusted, based on the Funded Debt
to EBITDA Ratio as of the last day of the first Fiscal Quarter of the 1999
Fiscal Year and as of the last day of each Fiscal Quarter thereafter, as
calculated pursuant to the financial statements delivered pursuant to subsection
5.1(B) or (C), as applicable, as set forth below:
<TABLE>
<CAPTION>
Funded Debt to Applicable Revolving Applicable Revolving Loan
EBITDA Ratio Loan Margin for Base Margin for LIBOR
-------------- Rate Revolving Loans Revolving Loans
-------------------- -------------------------
<S> <C> <C>
Greater than or equal to 0.50% 3.00%
8.0:1.0
Less than 8.0:1.0 and greater 0.25% 2.50%
than or equal to 6.0:1.0
Less than 6.0:1.0 and greater 0.00% 2.25%
than or equal to 4.0:1.0
Less than 4.0:1.0 and greater 0.00% 2.00%
than or equal to 3.0:1.0
Less than 3.0:1.0 0.00% 1.75%
</TABLE>
Each adjustment in the Applicable Revolving Loan Margin for Base Rate Revolving
Loans shall take effect on the applicable Adjustment Date. Each adjustment in
the Applicable Revolving Loan Margin for LIBOR Revolving Loans shall take effect
on the first day of each Interest Period that commences or is continued on or
after the Adjustment Date.
"Applicable Term Loan Margin" means (a) with respect to Base
Rate Term Loans, a rate equal to one half of one percent (0.50%) and (b) with
respect to LIBOR Term Loans, a rate equal to two and three-quarters percent
(2.75%); provided, that such rates shall be adjusted, based on the Funded Debt
to EBITDA Ratio as of the last day of the first Fiscal Quarter of the 1999
Fiscal Year and as of the last day of each Fiscal Quarter thereafter, as
calculated pursuant to the financial statements delivered pursuant to subsection
5.1(B) or (C), as applicable, as set forth below:
<TABLE>
<CAPTION>
Funded Debt to Applicable Term Loan Applicable Term Loan
EBITDA Ratio Margin for Base Rate Margin for LIBOR
-------------- Term Loans Term Loans
-------------------- ----------------------
<S> <C> <C>
</TABLE>
4
<PAGE> 10
<TABLE>
<CAPTION>
Term Loans Term Loans
---------- ----------
<S> <C> <C>
Greater than or equal to 1.00% 3.25%
8.0:1.0
Less than 8.0:1.0 and greater 0.75% 3.00%
than or equal to 6.0:1.0
Less than 6.0:1.0 and greater 0.50% 2.75%
than or equal to 4.0:1.0
Less than 4.0:1.0 and greater 0.25% 2.50%
than or equal to 3.0:1.0
Less than 3.0:1.0 0.00% 2.25%
</TABLE>
Each adjustment in the Applicable Term Loan Margin for Base Rate Term Loans
shall take effect on the applicable Adjustment Date. Each adjustment in the
Applicable Term Loan Margin for LIBOR Term Loans shall take effect on the first
day of each Interest Period that commences or is continued on or after the
Adjustment Date.
"Asset Disposition" means the disposition, whether by sale,
lease, transfer, loss, damage, destruction, condemnation or otherwise, of any or
all of the assets of Borrower or any of its Subsidiaries other than sales of
Inventory in the ordinary course of business.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement substantially in the form of Exhibit B.
"Bank Letter of Credit" means each letter of credit issued by
a bank acceptable to and approved by Issuing Lender for the account of Borrower
and supported by a Risk Participation Agreement.
"Base Rate" means a variable rate of interest per annum equal
to the higher of (a) the rate of interest from time to time published by the
Board of Governors of the Federal Reserve System as the "Bank Prime Loan" rate
in Federal Reserve Statistical Release H.15(519) entitled "Selected Interest
Rates" or any successor publication of the Federal Reserve System reporting the
Bank Prime Loan rate or its equivalent, or (b) the Federal Funds Effective Rate
plus fifty (50) basis points. The statistical release generally sets forth a
Bank Prime Loan rate for each Business Day. In the event the Board of Governors
of the Federal Reserve System ceases to publish a Bank Prime Loan rate or its
equivalent, the term "Base Rate" shall mean a variable rate of interest per
annum equal to
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<PAGE> 11
the highest of the "prime rate", "reference rate", "base rate", or other similar
rate announced from time to time by any of Bankers Trust Company, The Chase
Manhattan Bank, N.A., Citibank, N.A. or their successors (with the understanding
that any such rate may merely be a reference rate and may not necessarily
represent the lowest or best rate actually charged to any customer by any such
bank).
"Base Rate Loans" means any portions of the Loans bearing
interest at rates determined by reference to the Base Rate.
"Base Rate Revolving Loans" means any portions of the
Revolving Loan that are also Base Rate Loans.
"Base Rate Term Loans" means any portions of the Term Loan
that are also Base Rate Loans.
"Beneficial Ownership" has the meaning assigned to that term
in Rule 13d-3 of the Securities Exchange Act of 1934, as amended.
"Blocked Accounts" has the meaning assigned to that term in
subsection 5.6.
"Borrower" has the meaning assigned to that term in the
preamble to this Agreement.
"Borrowing" means Loans of the same type and, in the case of
LIBOR Loans, having the same Interest Period, made by all Lenders on the same
Business Day and pursuant to the same Borrowing Request in accordance with
subsection 2.1(D)(1).
"Borrowing Base" has the meaning assigned to that term in
subsection 2.1(B).
"Borrowing Base Certificate" means a certificate and
assignment schedule duly executed by an authorized officer of Borrower
appropriately completed and in substantially the form of Exhibit C.
"Borrowing Request" means a loan request and certificate duly
executed by an authorized officer of Borrower, in the form of Exhibit D.
"Business Day" means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the States of Illinois or New
York or the Commonwealth of Pennsylvania, or is a day on which banking
institutions located in any such state are closed, and for the purposes of
Eurodollar Rate Loans only, is a day on which commercial banks are not open for
dealings in U.S. Dollar deposits in the London, England (U.K.)
interbank market.
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<PAGE> 12
"Capital Expenditures" means all expenditures (including
deposits) for, or contracts for expenditures that, in conformity with GAAP,
should be accounted for as capital expenditures.
"Capital Lease" means any lease of any property (whether real,
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease.
"Cash Collateralize" means to pledge and deposit with or
deliver to Collateral Agent, for the benefit of Agents, Issuing Lender and
Lenders, as additional collateral for the Letter of Credit Liability, cash or
deposit account balances pursuant to documentation in form and substance
satisfactory to Collateral Agent and Issuing Lender. Derivatives of such term
shall have corresponding meaning. Borrower hereby grants Collateral Agent, for
the benefit of Agents, Issuing Lender and Lenders, a security interest in all
such cash and deposit account balances. Cash collateral shall be maintained in
blocked, non-interest bearing deposit accounts.
"Cash Equivalents" means: (a) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within six (6) months from the date of acquisition
thereof; (b) commercial paper maturing no more than six (6) months from the date
issued and, at the time of acquisition, having a rating of at least A-1 from
Standard & Poor's Corporation or at least P-1 from Moody's Investors Service,
Inc.; (c) certificates of deposit or bankers' acceptances maturing within six
(6) months from the date of issuance thereof issued by, or overnight reverse
repurchase agreements from, any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank; and (d) collected funds on deposit at any
bank acceptable to Collateral Agent in its reasonable judgment.
"Change in Control" means
(a) the acquisition, through purchase or otherwise
(including the agreement to act in concert without more), by any Person
(other than Designated Persons) or group of Persons acting in concert
(other than Designated Persons), directly or indirectly, in one or more
transactions, of Beneficial Ownership or control of securities
representing more than 30% of the combined voting power of Borrower's
Voting Stock; or
(b) the distribution by Borrower of cash, securities
or other properties (other than regular periodic cash dividends at a
rate which is substantially consistent with past practice, including
with respect to increases in dividends, and other than common stock of
Borrower or rights to acquire common stock of Borrower) to holders of
capital stock (including by means of dividend,
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<PAGE> 13
reclassification, recapitalization or otherwise) which, together with
all other such distributions during the 365-day period preceding the
date of such distribution, has an aggregate fair market value in excess
of an amount equal to 30% of the fair market value of the Voting Stock
of Borrower outstanding on the date immediately prior to such
distribution.
A merger or consolidation pursuant to subsection 7.6 with
respect to which the Voting Stock of the surviving corporation is more than 30%
owned by a Person or group of Person acting in concert (other than Designated
Persons) who did not own such Voting Stock prior to such merger or consolidation
shall constitute a "Change of Control."
"Closing Date" means April 16, 1998.
"Co-Agent" means Harris, in its capacity as co-agent for
Lenders under the Loan Documents, and any successor in such capacity appointed
pursuant to subsection 9.1(G).
"Collateral" has the meaning assigned to that term in
subsection 2.7.
"Collateral Agent" means Heller, in its capacity as collateral
agent for Lenders under the Loan Documents, and any successor in such capacity
appointed pursuant to subsection 9.1(G).
"Collecting Banks" has the meaning assigned to that term in
subsection 5.6.
"Commitment" or "Commitments" means the commitment or
commitments of Lenders to make Loans as set forth in subsections 2.1(A) and/or
2.1(B) and to provide Lender Letters of Credit as set forth in subsection
2.1(G).
"Compliance Certificate" means a certificate duly executed by
the chief executive officer or chief financial officer of Borrower appropriately
completed and in substantially the form of Exhibit E.
"Confidential Information Memorandum" means the Confidential
Information Memorandum of Borrower dated February, 1998.
"Continuation/Conversion Notice" means a notice of
continuation or conversion and certificate duly executed by an authorized
officer of Borrower, substantially in the form of Exhibit F.
"Corporate Guarantors" has the meaning assigned to that term
in the preamble to this Agreement.
"Corporate Guaranties" means, collectively, the continuing
guaranty by each Corporate Guarantor in a form reasonably acceptable to
Collateral Agent and
8
<PAGE> 14
Administrative Agent, as each such agreement may hereafter be amended, restated,
supplemented or otherwise modified from time to time.
"Default" means a condition, act or event that, after notice
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within any applicable grace or cure period.
"Defaulted Amount" means, with respect to any Lender at any
time, any amount required to be paid by such Lender to Collateral Agent, any
other Agent or any other Lender hereunder or under any other Loan Documents,
which has not been so paid.
"Defaulting Lender" means, at any time, any Lender that owes a
Defaulted Amount.
"Default Rate" has the meaning assigned to that term in
subsection 2.2(A).
"Designated Persons" means any of the following:
(a) (i) Henry S. Dorfman, Mala Dorfman, Gayle Weiss,
Carolyn Dorfman and Joel Dorfman; (ii) the estates of the Persons set
forth in clause (i); and (iii) inter vivos or testamentary trusts the
beneficiaries of which are one or more Persons falling within the scope
of clauses (i) or (ii) above;
(b) Joel Dorfman, Henry S. Dorfman, Louis Glazier,
Michael Rozzano, Keith Jahnke and Edward Boan;
(c) a group of Persons fifty percent (50%) or more of
which are comprised of Person set forth in paragraphs (a) and/or (b)
above; or
(d) an Employee Stock Ownership Plan as defined in
Section 4975(e)(7) of the IRC.
"Documentation Agent" means Heller, in its capacity as
documentation agent for Lenders under the Loan Documents, and any successor in
such capacity appointed pursuant to subsection 9.1(G).
"EBITDA" means, for any period, without duplication, the total
of the following for Borrower and its Subsidiaries on a consolidated basis, each
calculated for such period: (1) Net Income; plus, to the extent included in the
calculation of Net Income, (2) the sum of (a) income and franchise taxes paid or
accrued; (b) Interest Expense, net of interest income, paid or accrued; (c)
interest paid in kind; (d) amortization and depreciation; (e) other non-cash
charges (excluding accruals for cash expenses made in the ordinary course of
business); (f) capitalized interest included in cost of sales; and (g)
prepayment fees paid in cash on the Closing Date to Borrower's existing lenders;
less, to the extent included in the calculation of Net Income, (3) the sum of
(a) the income of any
9
<PAGE> 15
Person (other than wholly-owned Subsidiaries of Borrower) in which Borrower or a
wholly owned Subsidiary of Borrower has an ownership interest except to the
extent such income is received by Borrower or such wholly-owned Subsidiary in a
cash distribution during such period; (b) gains or losses from sales or other
dispositions of assets (other than Inventory in the normal course of business);
and (c) extraordinary or non-recurring gains, but not net of extraordinary or
non-recurring "cash" losses.
"Eligible Accounts" has the meaning assigned to that term in
subsection 2.1(C).
"Eligible Assignee" shall mean (a) a commercial bank or
commercial finance company organized under the laws of the United States, or any
state thereof, and having a combined capital and surplus of at least
$100,000,000 (or $250,000,000 in the case of an assignment of a Revolving Loan
Commitment); (b) a commercial bank or commercial finance company organized under
the laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000 (or
$250,000,000 in the case of an assignment of a Revolving Loan Commitment),
provided that such bank is acting through a branch or agency located in the
country in which it is organized or another country which is also a member of
the OECD; (c) any other entity which is an "accredited investor" (as defined in
Regulation D under the Securities Act of 1933, as amended) which extends credit
or buys loans as one of its businesses, including but not limited to, insurance
companies, mutual funds and lease financing companies, and (d) a Person that is
primarily engaged in the business of lending that is (i) a Subsidiary of a
Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or
(iii) a Person of which a Lender is a Subsidiary; provided however, that no
Affiliate of Borrower shall be an Eligible Assignee.
"Eligible Contract Inventory" has the meaning assigned to that
term in subsection 2.1(C).
"Eligible Inventory" means, collectively, Eligible Meat
Inventory, Eligible Supplies Inventory and Eligible Contract Inventory.
"Eligible Meat Inventory" has the meaning assigned to that
term in subsection 2.1(C).
"Eligible Supplies Inventory" has the meaning assigned to that
term in subsection 2.1(C).
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA which (a) is maintained for employees of
any Loan Party or any ERISA Affiliate or (b) has at any time within the
preceding six (6) years been maintained for the employees of any Loan Party or
any current or former ERISA Affiliate.
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<PAGE> 16
"Environmental Claims" means claims, liabilities,
investigations, litigation, administrative proceedings, judgments or orders
relating to Hazardous Materials.
"Environmental Laws" means any present or future federal,
state or local law, rule, regulation or order relating to pollution, waste,
disposal or the protection of human health or safety, plant life or animal life,
natural resources or the environment.
"Equipment" means all "equipment" (as defined in the UCC),
including, without limitation, all furniture, furnishings, fixtures, machinery,
motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all
parts thereof and all additions and accessions thereto and replacements
therefor.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any
Person who is a member of a group which is under common control with any Loan
Party, who together with any Loan Party is treated as a single employer within
the meaning of Sections 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in
subsection 8.1.
"Excess Availability" means the amount by which the Borrowing
Base exceeds the sum of the Revolving Loan and the Letter of Credit Reserve.
"Excess Cash Flow" means, for any period, the greater of (A)
zero (0); or (B) without duplication, the total of the following for Borrower
and its Subsidiaries on a consolidated basis, each calculated for such period:
(1) EBITDA; plus (2) tax refunds actually received; less (3) Capital
Expenditures (to the extent actually made in cash and/or due to be made in cash
within such period but in no event more than the amount permitted by subsection
6.3 hereof); less (4) income and franchise taxes paid or accrued excluding any
provision for deferred taxes included in the determination of net income; less
(5) decreases in deferred income taxes resulting from payments of deferred taxes
accrued in prior periods; less (6) Interest Expense paid or accrued; less (7)
scheduled amortization of Indebtedness actually paid in cash and/or due to be
paid in cash within such period and permitted under subsection 7.5; less (8)
voluntary prepayments and mandatory prepayments made under subsection 2.4(B)(2),
but only to the extent that the transaction that precipitated the mandatory
prepayment increased EBITDA.
"Executive Officers" means, collectively, George Weiss;
Michael J. Rozzano, Jr.; Ronald A. Risher; Lawrence Charlupski; Edward E. Boan;
Keith Jahnke; Louis Glazier; and Joel Dorfman.
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<PAGE> 17
"Existing Letters of Credit" has the meaning assigned to such
term in subsection 2.1(G).
"Federal Funds Effective Rate" means, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published on the immediately following Business Day by the Federal Reserve Bank
of New York or, if such rate is not published for any Business Day, the average
of the quotations for the day of the requested Loan received by Collateral Agent
from three Federal funds brokers of recognized standing selected by Collateral
Agent.
"Fiscal Period" means each period of 4 consecutive weeks in
any Fiscal Year.
"Fiscal Quarters" means the following consecutive Fiscal
Periods in each Fiscal Year:
Fiscal Quarter Fiscal Periods
-------------- --------------
1 1-4
2 5-7
3 8-10
4 11-13
"Fiscal Year" means each period of 52 or 53 consecutive weeks,
as applicable, ending on the last Friday in May in each year.
"Fixed Charge Coverage" means, for any period, Operating Cash
Flow divided by Fixed Charges.
"Fixed Charges" means, for any period, and each calculated for
such period for Borrower and its Subsidiaries on a consolidated basis (without
duplication), (a) Interest Expense paid or accrued; plus (b) scheduled payments
of principal with respect to all Indebtedness; plus (c) any provision for (to
the extent it is greater than zero) income or franchise taxes included in the
determination of net income, excluding any provision for deferred taxes; plus
(d) Restricted Junior Payments made in cash to the extent permitted under
subsection 7.5(b); plus (e) payment of deferred taxes accrued in any prior
period and minus (f) scheduled payments of principal in respect of the Premium
Notes.
"FSA" means the Food Security Act of 1985 ( 7 U.S.C. Section
1631 et seq.), as amended from time to time, and any successor statute.
"Funded Debt to EBITDA Ratio" means, on any date, the ratio of
(a) the aggregate outstanding amount of all interest-bearing Indebtedness on
such date, determined for Borrower and its Subsidiaries on a consolidated basis,
to (b) EBITDA for the period of
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<PAGE> 18
four (4) consecutive Fiscal Quarters ending on such date; provided, that for
each date of determination during the 1999 Fiscal Year, EBITDA shall be measured
for the period from the first day of such Fiscal Year through the date of
determination and annualized.
"Funding Date" means the date of each funding of a Loan or
issuance of a Lender Letter of Credit.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"Guarantor Security Agreements" means, collectively, the
guarantor security agreement to be executed and delivered by each Corporate
Guarantor, in a form reasonably acceptable to Collateral Agent and
Administrative Agent, as each such agreement may hereafter be amended, restated,
supplemented or otherwise modified from time to time.
"Harris" has the meaning assigned to that term in the preamble
to this Agreement.
"Hazardous Material" means all or any of the following: (a)
substances that are defined or listed in, or otherwise classified pursuant to,
any Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity, or
toxicity; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
polychlorinated biphenyls.
"Heller" has the meaning assigned to that term in the preamble
to this Agreement.
"Honor Date" has the meaning assigned to that term in
subsection 2.1(G)(3).
"Indebtedness", as applied to any Person, means without
duplication: (a) all indebtedness for borrowed money; (b) obligations under
leases which in accordance with GAAP constitute Capital Leases; (c) notes
payable and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money; (d) any obligation owed for all or
any part of the deferred purchase price of property or services if the purchase
price is due more than six months from the date the obligation is incurred or
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<PAGE> 19
is evidenced by a note or similar written instrument; (e) all indebtedness
secured by any Lien on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non recourse to the credit of that Person and (f)
obligations in respect of letters of credit.
"Insolvency Proceeding" means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any court or
other governmental authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, wind-up or relief of debtors (including
any proceeding under the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101 et seq.) or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors or other, similar arrangement
in respect of such Person's creditors generally or any substantial portion of
such creditors.
"Intangible Assets" means all intangible assets (determined in
conformity with GAAP) including, without limitation, goodwill, Intellectual
Property, licenses, organizational costs, deferred amounts, covenants not to
compete, unearned income and restricted funds, all calculated for Borrower and
its Subsidiaries on a consolidated basis.
"Intellectual Property" means all present and future designs,
patents, patent rights and applications therefor, trademarks and registrations
or applications therefor, trade names, corporate names, inventions, copyrights
and all applications and registrations therefor, software or computer programs,
license rights, trade secrets, methods, processes, know-how, drawings,
specifications, descriptions, and all memoranda, notes and records with respect
to any research and development, whether now owned or hereafter acquired, all
goodwill associated with any of the foregoing, and proceeds of all of the
foregoing, including, without limitation, proceeds of insurance policies
thereon.
"Interest Expense" means, without duplication, for any period,
the following, for Borrower and its Subsidiaries on a consolidated basis, each
calculated for such period: interest expense deducted in the determination of
net income (excluding (i) the amortization of fees and costs with respect to the
transactions contemplated by this Agreement which have been capitalized as
transaction costs in accordance with the provisions of subsection 1.2, (ii) the
amortization of interest expense which has been capitalized and (iii) interest
paid in kind).
"Interest Period" means relative to any LIBOR Loan, the period
beginning on (and including) the date on which such LIBOR Loan is made or
continued as, or converted into, a LIBOR Loan pursuant to subsection 2.2(D), and
shall end on (but exclude) the day which numerically corresponds to such date
one, two, three or six months thereafter (or, if the applicable month has no
numerically corresponding day, on the last Business Day of such month), in
either case as Borrower may select in its relevant notice pursuant to subsection
2.2; provided, however, that
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<PAGE> 20
(a) Borrower shall not be permitted to select Interest Periods
to be in effect at any one time which have expiration dates occurring
on more than six (6) different dates;
(b) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration;
(c) if such Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall end on the next
following Business Day (unless such next following Business Day is the
first Business Day of a calendar month, in which case such Interest
Period shall end on the Business Day next preceding such numerically
corresponding day); and
(d) no Interest Period may end later than the Termination
Date.
"Interest Rate" means the Revolving Loan Interest Rate or the
Term Loan Interest Rate, as applicable.
"Inventory" means all "inventory" (as defined in the UCC),
including, without limitation, finished goods, raw materials, work in process
and other materials and supplies used or consumed in a Person's business, farm
products, livestock, livestock products and by-products and livestock issue,
poultry, poultry products and by-products and poultry issue, and goods which are
returned or repossessed.
"Inventory Report" means a report with respect to Inventory
electronically transmitted by an authorized officer of Borrower to Collateral
Agent from time to time, containing such information as is reasonably required
by Collateral Agent.
"IRC" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute and all rules and regulations
promulgated thereunder.
"Issuing Lender" means Rabobank, in its capacity as the issuer
of one or more Lender Letters of Credit or Risk Participation Agreements or such
other Person as Borrower shall request and Collateral Agent and Administrative
Agent shall agree shall act as the issuer of Lender Letters of Credit or Risk
Participation Agreements hereunder; provided that Issuing Lender shall
specifically include Rabobank and Old Kent in their respective capacities as
issuers of the Existing Letters of Credit.
"L/C Advance" means each Lender's participation in any L/C
Borrowing in accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for
amendment of an outstanding standby or commercial documentary letter of credit
as shall at any time be in use at Issuing Lender, as Issuing Lender shall
request.
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<PAGE> 21
"L/C Application" means an application form for issuances of a
standby or commercial documentary letter of credit as shall at any time be in
use at Issuing Lender, as Issuing Lender shall request.
"L/C Borrowing" means an extension of credit resulting from a
drawing under any Lender Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Revolving Advance under subsection
2.1(G)(3).
"L/C-Related Documents" means the Lender Letters of Credit,
the Bank Letters of Credit, the L/C Applications, the L/C Amendment Applications
and any other documents relating to any Lender Letter of Credit, including any
of Issuing Lender's standard form documents for letter of credit issuances.
"Lender" or "Lenders" has the meaning assigned to that term in
the preamble to this Agreement.
"Lender Letter of Credit" has the meaning assigned to that
term in subsection 2.1(G).
"Letter of Credit Liability" means, all reimbursement and
other liabilities of Borrower or any of its Subsidiaries with respect to each
Lender Letter of Credit, whether contingent or otherwise, including: (a) the
amount available to be drawn or which may become available to be drawn; (b) all
amounts which have been paid or made available by any Lender issuing a Lender
Letter of Credit or any bank issuing a Bank Letter of Credit to the extent not
reimbursed; and (c) all unpaid interest, fees and expenses related thereto.
"Letter of Credit Reserve" means, at any time, an amount equal
to (a) the aggregate amount of Letter of Credit Liability with respect to all
Lender Letters of Credit outstanding at such time plus, without duplication, (b)
the aggregate amount theretofore paid by any Agent or any Lender under Lender
Letters of Credit and not debited to Borrower's loan account pursuant to
subsection 2.1(G)(3) or otherwise reimbursed by Borrower.
"Liabilities" shall have the meaning given that term in
accordance with GAAP and shall include Indebtedness.
"LIBOR" means, for each Interest Period, a rate of interest
equal to:
(a) the rate for deposits in Dollars for the relevant Interest
Period that appears on the Telerate Page 3750 as of 11:00 A.M. (London time) on
the second Business Day prior to the first day of such Interest Period ("LIBOR
Telerate"). "Telerate Page 3750" means the display designated as page "3750" on
the Telerate Services (or such other page as may replace the 3750 page on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for Dollar deposits). If no rate appears on the Telerate Page 3750,
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<PAGE> 22
LIBOR in respect of that date will be determined as if the parties had specified
the rate described in (b) below.
(b) with respect to any date on which no rate appears on
Telerate Page 3750, as specified in (a) above, LIBOR will be determined on the
basis of the rates at which deposits in Dollars for the relevant Interest Period
are offered at approximately 11:00 A.M. (London time) on that date by four major
banks in the London interbank market selected by Collateral Agent ("Reference
Banks") to prime banks in the London interbank market commencing on the second
Business Day prior to the first day of such Interest Period and in a principal
amount equal to an amount of not less than $1,000,000 that is representative for
a single transaction in such market at such time. Collateral Agent will request
the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, LIBOR in
respect of that date will be the arithmetic mean of such quotations. If fewer
than two quotations are provided, LIBOR in respect of that date will be the
arithmetic mean of the rates quoted at approximately 11:00 A.M. (New York City
time) on such date by three major banks in the City of New York selected by
Collateral Agent for loans in Dollars to leading European banks for the relevant
Interest Period commencing on the second Business Day prior to the first day of
such Interest Period and in a principal amount equal to an amount of not less
than $1,000,000 that is representative for a single transaction in such market
at such time; provided, however, that if the banks selected as aforesaid by
Collateral Agent are not quoting as mentioned in this sentence, LIBOR with
respect to such date will be the rate of LIBOR in effect on the date on which
such rate was last determinable.
The rate determined by either (a) or (b) above shall be
divided by a number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements in effect
on the day which is two (2) Business Days prior to the beginning of such
Interest Period (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect) for Eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) which are required to be maintained by a member bank of the Federal
Reserve System (such rate to be adjusted to the nearest one sixteenth of one
percent (1/16 of 1%) or, if there is not a nearest one sixteenth of one percent
(1/16 of 1%), to the next higher one sixteenth of one percent (1/16 of 1%).
"LIBOR Loans" means any portions of the Loans bearing interest
by reference to LIBOR.
"LIBOR Revolving Loans" means any portions of the Revolving
Loan that are also LIBOR Loans.
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"LIBOR Term Loans" means any portions of the Term Loan that
are also LIBOR Loans.
"Lien" means any lien, mortgage, pledge, security interest,
charge or encumbrance of any kind, whether voluntary or involuntary, (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term
Loan Commitment or the Revolving Loan Commitment.
"Loan Documents" means this Agreement, the Term Notes, the
Revolving Notes, the Corporate Guaranties, the Guarantor Security Agreements,
the Pledge Agreement, the Mortgages, and all other instruments, documents and
agreements executed by or on behalf of Borrower or any Corporate Guarantor and
delivered concurrently herewith or at any time hereafter to or for any Agent or
any Lender in connection with the Loans, any Lender Letter of Credit, and other
transactions contemplated by this Agreement, all as amended, restated,
supplemented or modified from time to time.
"Loan Party" means each of Borrower, Borrower's Subsidiaries
and any other Person (other than any Agent or any Lender) which is or becomes a
party to any Loan Document.
"Loan Year" means each period of twelve (12) consecutive
calendar months commencing on the Closing Date and ending on each anniversary
thereof.
"Material Adverse Effect" means a material adverse effect upon
(a) the business, operations, properties, assets or condition (financial or
otherwise) of the Loan Parties taken as a whole or (b) the ability of any Loan
Party to perform its obligations under any Loan Document to which it is a party
or of any Agent or any Lender to enforce or collect any of the Obligations.
"Maximum Revolving Loan Amount" has the meaning assigned to
that term in subsection 2.1(B).
"Mortgages" means, collectively, the mortgages, deeds of
trust, leasehold mortgages, leasehold deeds of trust, collateral assignments of
leases or other real estate security documents delivered by any Loan Party to
Collateral Agent, on behalf of Agents and Lenders, with respect to Mortgaged
Property or Additional Mortgaged Property, all in form and substance
satisfactory to Collateral Agent and Administrative Agent.
"Mortgaged Property" means the real property owned or leased
by Borrower or its Subsidiaries as described on Schedule 1.1(A).
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"Net Income" means, for any period, net income for such
period, calculated for Borrower and its Subsidiaries on a consolidated basis in
conformity with GAAP.
"Net Worth" means, as of any date, the sum of capital stock
and additional paid-in capital plus retained earnings (or minus accumulated
deficit), calculated for Borrower and its Subsidiaries on a consolidated basis
in conformity with GAAP.
"Notes" means the Revolving Notes and the Term Notes.
"Obligations" means all obligations, liabilities and
indebtedness of every nature of each Loan Party from time to time owed to any
Agent or to any Lender under the Loan Documents including the principal amount
of all debts, claims and indebtedness (whether incurred before or after the
Termination Date), accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable including, without
limitation, all interest, fees, cost and expenses accrued or incurred after the
commencement of any Insolvency Proceeding.
"Old Kent" means Old Kent Bank and Trust Company.
"Operating Cash Flow" means, for any period, (a) EBITDA; less
(b) Capital Expenditures.
"Original Term" has the meaning assigned to that term in
subsection 2.5.
"PASA" means the Packers and Stockyards Act of 1921 (7 U.S.C.
Section 181 et seq.), as amended from time to time, and any successor statute.
"Permitted Encumbrances" means the following types of Liens:
(a) Liens (other than Liens relating to Environmental Claims or ERISA) for
taxes, assessments or other governmental charges not yet due and payable; (b)
statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and
other similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (d) encroachments, easements, rights-of-way,
restrictions, and other similar charges or encumbrances not interfering in any
material respect with the ordinary conduct of the business of any Loan Party or
any of its Subsidiaries; (e) Liens for purchase money obligations, provided that
(i) the purchase of the asset subject to any such Lien is permitted under
subsection 6.3, (ii) the Indebtedness secured by any such Lien is permitted
under subsection 7.1, and (iii) such Lien encumbers only the asset so purchased;
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(f) Liens in favor of Collateral Agent, on behalf of Agents and Lenders; (g)
Liens on real property securing unpaid real estate taxes that are due and
payable and that under applicable law may be paid without incurring a penalty or
bearing interest; (h) Liens that have been bonded in cash to the reasonable
satisfaction of Collateral Agent and Administrative Agent; (i) Liens in favor of
the holders of the Premium Notes; (j) Liens on shares of preferred stock of
Michigan Livestock Credit Corporation owned by Borrower, to secure the
Indebtedness described in subsection 7.1(g); (k) Liens on leased Equipment
arising under operating leases of such Equipment entered into in the ordinary
course of business; and (l) Liens set forth on Schedule 1.1(B).
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, limited liability companies, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreement" means each stock pledge agreement executed
and delivered by any Loan Party, in favor of Collateral Agent, on behalf of
Agents and Lenders, in form and substance satisfactory to Collateral Agent and
Administrative Agent.
"PPFPA" means the Poultry Producers Financial Protection Act
of 1987 (7 U.S.C. Section 197 et seq.), as amended from time to time, and any
successor statute.
"Premium Notes" means the Subordinated Notes of even date
herewith in the aggregate original principal amount of $2,200,000 executed by
Borrower in favor of Allstate Life Insurance Company, Principal Mutual Life
Insurance Company and Great-West Life & Annuity Insurance Company, respectively.
"Pro Forma" means the unaudited consolidated and consolidating
balance sheet of Borrower and its Subsidiaries as of the Closing Date after
giving effect to the transactions contemplated by this Agreement.
The Pro Forma is annexed hereto as Schedule 1.1(C).
"Pro Rata Share" means (a) with respect to matters relating to
a particular Commitment of a Lender, the percentage obtained by dividing (i)
such Commitment of that Lender by (ii) all such Commitments of all Lenders and
(b) with respect to all other matters, the percentage obtained by dividing (i)
the Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of all
Lenders, in either case as such percentage may be adjusted by assignments
permitted pursuant to subsection 9.1; provided, however, if any Commitment is
terminated pursuant to the terms hereof, then "Pro Rata Share" means the
percentage obtained by dividing (x) the aggregate amount of such Lender's
outstanding Loans related to such Commitment by (y) the aggregate amount of all
outstanding Loans related to such Commitment.
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"Projections" means Borrower's forecasted: (a) balance sheets;
(b) profit and loss statements; (c) cash flow statements; and (d) capitalization
statements, all prepared on a consolidated and a consolidating basis (on a
division by division basis, separating the fresh meats division from the
processing division), and otherwise consistent with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"Rabobank" has the meaning assigned to that term in the
preamble to this Agreement.
"Reconciliation Report" means a report duly executed by the
chief executive officer or chief financial officer of Borrower appropriately
completed and in substantially the form of Exhibit H.
"Renewal Term" has the meaning assigned to that term in
subsection 2.5.
"Requisite Lenders" means Lenders (other than any Defaulting
Lenders) holding or being responsible for sixty-six and two thirds percent (66
2/3%) or more of the sum of (a) outstanding Loans (other than Loans owing to any
Defaulting Lenders), (b) outstanding Letter of Credit Liability (other than
Letter of Credit Liability owing to any Defaulting Lenders) and (c) unutilized
Commitments (other than unutilized Commitments of any Defaulting Lenders).
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter outstanding, except a
dividend payable solely with shares of the class of stock on which such dividend
is declared; (b) any payment or prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, retirement, defeasance,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any Subordinated Debt or any shares of any class of stock of
Borrower or any of its Subsidiaries now or hereafter outstanding, or the
issuance of a notice of an intention to do any of the foregoing; (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire shares of any class of stock of Borrower or any of
its Subsidiaries now or hereafter outstanding; and (d) any payment by Borrower
or any of its Subsidiaries of any management, consulting or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise.
"Revolving Advance" means each advance made by Lenders
pursuant to subsection 2.1(B).
"Revolving Loan" means the outstanding balance of all
Revolving Advances and any amounts added to the principal balance of the
Revolving Loan pursuant to this Agreement.
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"Revolving Loan Commitment" means (a) as to any Lender, the
commitment of such Lender to make Revolving Advances pursuant to subsection
2.1(B), and to purchase participations in Lender Letters of Credit pursuant to
subsection 2.1(G) in the aggregate amount set forth on the signature page of
this Agreement opposite such Lender's signature or in the most recent Assignment
and Assumption Agreement, if any, executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Revolving Advances and
to purchase participations in Lender Letters of Credit.
"Revolving Loan Interest Rate" has the meaning assigned to
that term in subsection 2.2(A).
"Revolving Loan Limit" means an amount equal to (a)
$85,000,000 during the period from February 1 to and including August 1 of each
year and (b) $95,000,000 at all other times.
"Revolving Notes" means, collectively, each promissory note of
Borrower in a form reasonably acceptable to Collateral Agent and Administrative
Agent, issued pursuant to subsection 2.1(E).
"Risk Participation Agreement" has the meaning assigned to
that term in subsection 2.1(G).
"Scheduled Installment" has the meaning assigned to that term
in subsection 2.1(A).
"Special Ineligible Deduction" means, at any date of
determination, an amount equal to the sum of (a) the aggregate amount of
Borrower's Liabilities to unpaid cash sellers of livestock, as defined under
PASA and (b) the aggregate amount of Borrower's Liabilities to unpaid cash
sellers of live poultry, as defined under PPFPA.
"Subordinated Debt" means, collectively, (a) all Indebtedness
owing by Borrower under certain 9% Convertible Subordinated Debentures Due April
1, 2007 in the aggregate principal amount of $17,250,000, issued pursuant to a
certain Indenture dated as of March 25, 1997 between Borrower and State Street
Bank and Trust Company, as Trustee (the "Indenture"); (b) all Indebtedness owing
by Borrower under the Premium Notes; and (c) any other Indebtedness of Borrower
that is subordinated to the Obligations in a manner satisfactory to Collateral
Agent and Administrative Agent.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other subsidiaries of that Person or a combination
thereof.
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"Supermajority Lenders" means Lenders (other than any
Defaulting Lenders) holding or being responsible for eighty-nine percent (89%)
or more of the sum of (a) outstanding Loans (other than Loans owing to any
Defaulting Lenders), (b) outstanding Letter of Credit Liability (other than
Letter of Credit Liability owing to any Defaulting Lenders) and (c) unutilized
Commitments (other than unutilized Commitments of any Defaulting Lenders).
"Term Loan means the unpaid balance of the term loan made
pursuant to subsection 2.1(A).
"Term Loan Commitment" means (a) as to any Lender, the
commitment of such Lender to make its Pro Rata Share of the Term Loan in the
maximum aggregate amount set forth on the signature page of this Agreement
opposite such Lender's signature or in the most recent Assignment and Assumption
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make the Term Loan.
"Term Loan Interest Rate" has the meaning assigned to that
term in subsection 2.2(A).
"Term Notes" means, collectively, each promissory note of
Borrower in a form reasonably acceptable to Collateral Agent and Administrative
Agent, issued pursuant to subsection 2.1(E).
"Termination Date" means the date this Agreement is
terminated as set forth in subsection 2.5.
"Total Loan Commitment" means as to any Lender the aggregate
commitments of such Lender with respect to its Revolving Loan Commitment and
Term Loan Commitment.
"Transportation Subsidiary" means any Subsidiary of Borrower
that operates primarily in the transportation services business.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the State of Illinois, as amended from time to time, and any
successor statute.
"Voting Stock" shall mean capital stock of any class or
classes of a corporation having power under ordinary circumstances to vote
for the election of members of the board of directors of such corporation, or
persons performing similar functions (irrespective of whether or not at the
time stock of any of the class or classes shall have or might have special
voting power or rights by reason of the happening of any contingency).
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"Warehouse Reserve" means, at any date of determination, a
reserve equal to the aggregate of 3 calendar months' average warehouse charges
for each warehouse location for which Borrower has not delivered to Collateral
Agent a warehouseman's agreement acceptable to Collateral Agent.
1.2. Accounting Terms.
For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
any Agent or any Lender pursuant to subsection 5.1 shall be prepared in
accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis, including the reflection of Inventory values on a LIFO basis;
provided, that notwithstanding the foregoing, for the purposes of calculating
compliance with the financial covenants contained in Section 6, the Applicable
Non-Use Fee Margin, the Applicable Revolving Loan Margin, the Applicable Term
Loan Margin and Excess Cash Flow, all amounts with respect to Inventory shall be
shown on a FIFO basis, without regard to LIFO adjustments. In the event any
"Accounting Changes" (as defined below) shall occur and such changes affect
financial covenants, standards or terms in this Agreement, then Borrower and
Lenders agree to enter into negotiations in order to amend such provisions of
this Agreement so as to equitably reflect such Accounting Changes with the
desired result that the criteria for evaluating the financial condition of
Borrower shall be the same after such Accounting Changes as if such Accounting
Changes had not been made, and until such time as such an amendment shall have
been executed and delivered by Borrower and Requisite Lenders, (A) all financial
covenants, standards and terms in this Agreement shall be calculated and/or
construed as if such Accounting Changes had not been made, and (B) Borrower
shall prepare footnotes to each Compliance Certificate and the financial
statements required to be delivered hereunder that show the differences between
the financial statements delivered (which reflect such Accounting Changes) and
the basis for calculating financial covenant compliance (without reflecting such
Accounting Changes). "Accounting Changes" means: (a) changes in accounting
principles required by GAAP and implemented by Borrower; (b) changes in
accounting principles recommended by Borrower's certified public accountants;
and (c) changes in carrying value of Borrower's or any of its Subsidiaries'
assets, liabilities or equity accounts resulting from any adjustments that, in
each case, were applicable to, but not included in, the Pro Forma. All such
adjustments resulting from expenditures made subsequent to the Closing Date
(including, but not limited to, capitalization of costs and expenses or payment
of pre-Closing Date liabilities) shall be treated as expenses in the period the
expenditures are made and deducted as part of the calculation of EBITDA in such
period.
1.3. Other Definitional Provisions.
References to "Sections", "subsections", "Exhibits" and
"Schedules" shall be to Sections, subsections, Exhibits and Schedules,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in subsection 1.1 may, unless
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the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, words importing any gender include the
other genders; the words "including," "includes" and "include" shall be deemed
to be followed by the words "without limitation"; references to agreements and
other contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
SECTION 2. LOANS AND COLLATERAL
2.1. Loans.
(A) Term Loan.
Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Borrower and the other Loan
Parties set forth herein and in the other Loan Documents, each Lender,
severally, agrees to lend to Borrower, on the Closing Date, its Pro Rata Share
of the Term Loan, which is in the aggregate amount of $75,000,000. The Term Loan
shall be funded in one drawing. Amounts borrowed under this subsection 2.1(A)
and repaid may not be reborrowed. Borrower shall make principal payments in the
Term Loan in successive monthly installments ("Scheduled Installments") of
$781,250 on the first day of each calendar month hereafter commencing April 1,
1999; provided, that notwithstanding the foregoing, the entire outstanding
principal balance of the Term Loan shall be due and owing on the Termination
Date.
(B) Revolving Loan.
Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Borrower and the other Loan
Parties set forth herein and in the other Loan Documents, each Lender,
severally, agrees to lend to Borrower from time to time its Pro Rata Share of
each Revolving Advance. The aggregate amount of all Revolving Loan Commitments
shall not exceed at any time the Revolving Loan Limit at such time, as reduced
by Section 2.4(B). Amounts borrowed under this subsection 2.1(B) may be repaid
and reborrowed at any time prior to the earlier of (i) the termination of the
Revolving Loan Commitment pursuant to subsection 8.3 or (ii) the Termination
Date. Except as otherwise provided herein, no Lender shall have any obligation
to make an advance under this subsection 2.1(B) to the extent such advance would
cause the Revolving Loan (after giving effect to any immediate application of
the proceeds thereof) to exceed the Maximum Revolving Loan Amount.
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(1) "Maximum Revolving Loan Amount" means, as of
any date of determination, the lesser of (a) the Revolving Loan Commitments of
all Lenders minus the Letter of Credit Reserve and (b) the Borrowing Base
minus the Letter of Credit Reserve.
(2) "Borrowing Base" means, as of any date of
determination, an amount equal to the sum of (a) eighty-five percent (85%) of
the amount by which Eligible Accounts exceeds the Advertising Ineligible
Deduction plus (b) the Applicable Eligible Meat Inventory Percentage of the
amount by which Eligible Meat Inventory exceeds the Special Ineligible Deduction
plus (c) eighty-five (85%) of Eligible Contract Inventory; plus (d) the lesser
of (i) $7,500,000 and (ii) fifty percent (50%) of Eligible Supplies Inventory;
plus (e) one hundred percent (100%) of Borrower's cash located in accounts in
which Collateral Agent has a first and only perfected Lien; less in each case
such reserves (other than the Letter of Credit Reserve) as Collateral Agent in
its reasonable discretion (or at the direction of Requisite Lenders) may elect
to establish, including without limitation the Warehouse Reserve; provided, that
no additional reserves instituted by Collateral Agent or Requisite Lenders shall
be effective until Borrower has received telephonic or written notice thereof
from Collateral Agent.
(C) Eligible Collateral.
"Eligible Accounts" means, as at any date of determination,
the aggregate of all Accounts that Collateral Agent, in its reasonable judgment
(or as directed by Requisite Lenders), deems to be eligible for borrowing
purposes. Without limiting the generality of the foregoing, unless otherwise
agreed by Agents or Requisite Lenders, the following Accounts are not Eligible
Accounts:
(1) Accounts which remain unpaid for more than
fifty (50) days after the actual delivery date of the goods specified in the
applicable invoice;
(2) Accounts which are otherwise eligible with
respect to which the account debtor is owed a credit by Borrower or a
Transportation Subsidiary, but only to the extent of such credit;
(3) Accounts due from a customer whose principal
place of business is located outside the United States of America unless such
Account is backed by a letter of credit, in form and substance acceptable
to Collateral Agent and issued or confirmed by a bank that is organized under
the laws of the United States of America or a State thereof, that is acceptable
to Collateral Agent; provided that such letter of credit has been delivered to
Collateral Agent as additional collateral;
(4) Accounts due from a customer which Collateral
Agent has notified Borrower does not have a satisfactory credit standing;
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(5) Accounts with respect to which the customer
is the United States of America, any state or any municipality, or any
department, agency or instrumentality thereof unless Borrower or a
Transportation Subsidiary, as applicable, has, with respect to such Accounts,
complied with the Federal Assignment of Claims Act (31 U.S.C. Section 3727) or
any applicable statute or municipal ordinance of similar purpose and effect;
(6) Accounts with respect to which the customer
is an Affiliate of Borrower or a director, officer, agent, stockholder or
employee of Borrower or any of its Affiliates;
(7) Accounts due from a customer if more than
twenty-five percent (25%) of the aggregate amount of Accounts of such
customer (excluding any amounts in dispute which Collateral Agent has agreed
may be so excluded), have at the time remained unpaid for more than fifty (50)
days after the actual delivery date of the goods specified in the applicable
invoice;
(8) Accounts with respect to which there is any
unresolved dispute with the respective customer (but only to the extent of such
dispute);
(9) Accounts evidenced by an "instrument" or
"chattel paper" (as defined in the UCC) not in the possession of Collateral
Agent, on behalf of Agents and Lenders;
(10) Accounts with respect to which Collateral
Agent, on behalf of Agents and Lenders, does not have a valid, first priority
and fully perfected security interest;
(11) Accounts subject to any Lien except those in
favor of Collateral Agent, on behalf of Agents and Lenders;
(12) Accounts with respect to which the customer
is the subject of any bankruptcy or other insolvency proceeding;
(13) Accounts due from a customer to the extent
that such Accounts exceed in the aggregate an amount equal to twenty percent
(20%) of the aggregate of all Accounts at said date;
(14) Accounts with respect to which the customer's
obligation to pay is conditional or subject to a repurchase obligation or right
to return or with respect to which the goods or services giving rise to such
Account have not been delivered (or performed, as applicable) and accepted by
such account debtor, including progress billings, bill and hold sales,
guarantied sales, sale or return transactions, sales on approval or consignment
sales;
(15) Accounts with respect to which the customer
is located in New Jersey or any other state denying creditors access to its
courts in the absence of a Notice of
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Business Activities Report or other similar filing, in each case unless Borrower
or a Transportation Subsidiary, as applicable, has either qualified as a foreign
corporation authorized to transact business in such state or has filed a Notice
of Business Activities Report or similar filing with the applicable state agency
for the then current year; and
(16) Accounts with respect to which the customer
is a creditor of Borrower or a Transportation Subsidiary, provided, however,
that any such Account shall only be ineligible as to that portion of such
Account which is less than or equal to the amount owed by Borrower or such
Transportation Subsidiary to such Person.
No additional categories of ineligible Accounts instituted by Collateral Agent
or Requisite Lenders shall be effective until Borrower has received telephonic
or written notice thereof from Collateral Agent.
"Eligible Contract Inventory" means, as at any date of
determination, the value (determined at the lower of cost or market on a
first-in, first-out basis) of all finished goods Inventory produced by Borrower
under the holiday sales contract with Sam's Warehouse Clubs or under any similar
holiday sales contract approved by Supermajority Lenders, owned by and in the
possession of Borrower and located in the United States of America that
Collateral Agent, in its reasonable credit judgment (or as directed by Requisite
Lenders), deems to be eligible for borrowing purposes; provided, that the
aggregate amount of Eligible Contract Inventory shall not at any time exceed
$25,000,000. Without limiting the generally of the foregoing, unless otherwise
agreed by Agents or Requisite Lenders, the following is not Eligible Contract
Inventory: (a) goods which do not meet the specifications of the contract for
such goods or, if such contract does not contain specifications, goods that do
not meet general industry specifications; (b) Inventory which Collateral Agent
determines is unacceptable for borrowing purposes due to age, quality, type,
category and/or quantity; (c) Inventory with respect to which Collateral Agent,
on behalf of Agents and Lenders, does not have a valid, first priority and fully
perfected security interest; (d) Inventory with respect to which there exists
any Lien in favor of any Person other than Collateral Agent, on behalf of Agents
and Lenders; (e) Inventory produced in violation of the Fair Labor Standards Act
and subject to the so-called "hot goods" provisions contained in Title 29 U.S.C.
215 (a)(i); (f) Inventory located at a location of a co-packer for Borrower; (g)
Inventory in transit either to or from one of Borrower's locations; and (h)
Inventory located at any location other than Borrower's principal location or a
co-packer, unless a waiver of interest acceptable in form and substance is
delivered to Collateral Agent. No additional categories of ineligible contract
Inventory instituted by Collateral Agent or Requisite Lenders shall be effective
until Borrower has received telephone or written notice thereof from Collateral
Agent.
"Eligible Meat Inventory" means, as at any date of
determination, the value (determined at the lower of cost or market on a
first-in, first-out basis) of all Inventory consisting of live hogs, livestock
carcasses, meat and meat products, hides, rendering products, offal, poultry and
poultry products, other than Eligible Contract Inventory,
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owned by and in the possession of Borrower and located in the United States of
America that Collateral Agent, in its reasonable credit judgment (or as directed
by Requisite Lenders), deems to be eligible for borrowing purposes. Without
limiting the generality of the foregoing, unless otherwise agreed by Agents or
Requisite Lenders, the following is not Eligible Meat Inventory: (a) goods which
do not meet the specifications of the purchase order for such goods or, if such
purchase order does not contain specifications, goods that do not meet general
industry specifications; (b) Inventory which Collateral Agent determines is
unacceptable for borrowing purposes due to age, quality, type, category and/or
quantity; (c) Inventory with respect to which Collateral Agent, on behalf of
Agents and Lenders, does not have a valid, first priority and fully perfected
security interest; (d) Inventory with respect to which there exists any Lien in
favor of any Person other than Collateral Agent, on behalf of Agents and
Lenders; (e) Inventory produced in violation of the Fair Labor Standards Act and
subject to the so-called "hot goods" provisions contained in Title 29 U.S.C. 215
(a)(i); (f) Inventory located at a location of a co-packer for Borrower; (g)
Inventory in transit more than 3 days either to or from one of Borrower's
locations, other than Inventory in transit to customers in Russia, (h) Inventory
in transit to customers in Russia, other than such Inventory (I) as to which
title has not yet passed from Borrower to the customer, (II) which is fully
insured to Collateral Agent's satisfaction, and (III) as to which all applicable
documents of title, bills of lading and other documents and instruments
evidencing Borrower's right, title and interest in such Inventory have been
physically delivered to Collateral Agent or its agent (including any carrier
acting as such); and (i) Inventory located at any location other than in transit
Inventory described in clause (g) or (h) and other than Inventory located at
Borrower's principal location or a co-packer, unless a waiver of interest
acceptable in form and substance is delivered to Collateral Agent. No additional
categories of ineligible meat Inventory instituted by Collateral Agent or
Requisite Lenders shall be effective until Borrower has received telephonic or
written notice thereof from Collateral Agent.
"Eligible Supplies Inventory" means at any date of
determination, the value (determined at the lower of cost or market on a
first-in, first-out basis) of all Inventory of packaging materials, supplies,
labels, spices and crackers, cheese, candy bars, cookies and other food
components of snack packs, other than Eligible Contract Inventory, owned by and
in the possession of Borrower and located in the United States of America that
Collateral Agent, in its reasonable credit judgment (or as directed by Requisite
Lenders), deems to be eligible for borrowing purposes. Without limiting the
generality of the foregoing, unless otherwise agreed by Agents or Requisite
Lenders, the following is not Eligible Supply Inventories: (a) Inventory which
Collateral Agent determines is unacceptable for borrowing purposes due to age,
quality, type, category and/or quantity; (b) Inventory with respect to which
Collateral Agent, on behalf of Agents and Lenders, does not have a valid, first
priority and fully perfected security interest; (c) Inventory with respect to
which there exists any Lien in favor of any Person other than Collateral Agent,
on behalf of Agents and Lenders; and (d) Inventory located at any location other
than Borrower's principal location, unless a waiver of interest acceptable in
form and substance
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is delivered to Collateral Agent. No additional categories of ineligible
supplies Inventory instituted by Collateral Agent or Requisite Lenders shall be
effective until Borrower has received telephonic or written notice thereof from
Collateral Agent.
(D) Borrowing Mechanics.
(1) By delivering a Borrowing Request to
Collateral Agent on or before 11:00 a.m., Central time, on a Business Day,
Borrower may from time to time irrevocably request, on not less than three (3)
Business Days' notice (in the case of a request for a LIBOR Loan) or on the day
of the requested Borrowing (in the case of a request for a Base Rate Loan), that
a Borrowing be made in (a) the case of a LIBOR Loan, in a minimum amount of
$1,000,000 and an integral multiple of $100,000 or in the unused amount of the
Revolving Loan Commitments or (b) the case of Base Rate Loans, in any unused
portion of the Revolving Loan Commitments. Collateral Agent shall advise each
Lender of such Borrowing Request on or before 12:30 p.m., Central time, on the
date of such Borrowing Request. On the terms and subject to the conditions of
this Agreement, each Borrowing shall be comprised of the type of Loans, and
shall be made on the Business Day, specified in such Borrowing Request. On or
before 10:00 a.m. Central time, on such Business Day if the requested Borrowing
is for LIBOR Loans or on or before 3:00 p.m., Central time, if the requested
Borrowing is for Base Rate Loans, each Lender shall deposit with Collateral
Agent same-day funds in an amount equal to such Lender's Pro Rata Share of the
requested Borrowing. Such deposit will be made to an account which Collateral
Agent shall specify from time to time by notice to Lenders. To the extent funds
are received from Lenders, Collateral Agent shall make such funds available to
Borrower by wire transfer to the accounts Borrower shall have specified in its
Borrowing Request. No Lender's obligation to make any Loan shall be affected by
any other Lender's failure to make any Loan.
(2) The becoming due of any amount required to be
paid under this Agreement or any of the other Loan Documents as principal,
accrued interest, fees and expenses shall be deemed irrevocably to be a request
by Borrower for a Base Rate Revolving Loan on the due date of, and in the amount
required to pay, such principal, accrued interest and fees, and the proceeds of
each such Revolving Advance if made by any Agent or any Lender shall be
disbursed by such Agent or such Lender by way of direct payment of the relevant
obligation; provided, that no amounts due in respect of expenses shall be
disbursed by any Agent or any Lender until Borrower has received written notice
thereof from such Agent or such Lender.
(E) Notes.
Borrower shall execute and deliver to each Lender with
appropriate insertions (i) a Term Note to evidence such Lender's Term Loan
Commitment, and (ii) a Revolving Note to evidence such Lender's Revolving Loan
Commitment. In the event of an assignment under subsection 9.5, Borrower shall,
upon surrender of the assigning
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Lender's Notes, issue new Notes to reflect the interest held by the assigning
Lender and its Eligible Assignee.
(F) Evidence of Revolving Loan Obligations.
Each Revolving Advance shall be evidenced by this Agreement,
the Revolving Notes, and notations made from time to time by Collateral Agent in
its books and records, including computer records. Collateral Agent shall record
in its books and records, including computer records, the principal amount of
the Revolving Loan owing to each Lender from time to time. Collateral Agent's
books and records shall constitute presumptive evidence, absent manifest error,
of the accuracy of the information contained therein. Failure by Collateral
Agent to make any such notation or record shall not affect the obligations of
Borrower to Lenders with respect to the Revolving Loan.
(G) Letters of Credit.
Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
herein set forth, the Revolving Loan Commitments may, in addition to Revolving
Advances be utilized, upon the request of Borrower, for (i) the issuance of
letters of credit by Issuing Lender or (ii) the issuance by Issuing Lender of
risk participations (each, a "Risk Participation Agreement") to banks to induce
such banks to issue letters of credit for the account of Borrower (each of (i)
and (ii) above, a "Lender Letter of Credit"). Prior to the Closing Date, (a)
Rabobank issued certain letters of credit for the account of Borrower under a
financing arrangement among Borrower, Rabobank and certain other lenders and (b)
Old Kent issued certain letters of credit for the account of Borrower under a
letter of credit financing arrangement between Borrower and Old Kent
(collectively, the "Existing Letters of Credit"). All Existing Letters of Credit
still outstanding on the date hereof (including the undrawn and drawable face
amounts and expiry dates thereof) are listed on Schedule 2.1(G). Agents, Lenders
and Borrower hereby agree that the Existing Letters of Credit shall be deemed to
be Lender Letters of Credit issued under this Agreement on the Closing Date for
the account of Borrower and each of Rabobank and Old Kent shall be deemed to be
the Issuing Lender hereunder with respect to the Existing Letters of Credit
issued by it. Each of Borrower, Rabobank and Old Kent hereby agrees that any
agreements or documents evidencing or relating to the Existing Letters of Credit
or the reimbursement obligations of Borrower with respect thereto (including
without limitation any reimbursement agreements relating thereto) are deemed to
be terminated and that all obligations of Borrower with respect of the Existing
Letters of Credit shall be deemed to be governed solely by this Agreement. Each
Lender shall be deemed to have purchased a participation in each Lender Letter
of Credit issued on behalf of Borrower in an amount equal to its Pro Rata Share
thereof. In no event shall any Lender Letter of Credit be issued to the extent
that the issuance of such Lender Letter of Credit would cause the sum of the
Letter of Credit Reserve (after giving effect to such issuance) plus the
Revolving Loan to exceed the lesser of (x) the Borrowing Base and (y) the
Revolving Loan Commitment. In addition to all other terms and
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conditions set forth in this Agreement, the issuance of any Lender Letter of
Credit shall also be subject to the satisfaction of all conditions applicable to
Revolving Advances, and the conditions that the letter of credit which Borrower
requests be in such form, be for such amount, contain such terms and support
such transactions as are reasonably satisfactory to Issuing Lender and
Collateral Agent. The expiration date of each Lender Letter of Credit shall be
on a date which is at least thirty (30) days prior to the Termination Date.
(1) Maximum Amount.
The aggregate amount of Letter of Credit Liability with
respect to all Lender Letters of Credit outstanding at any time shall not exceed
$15,000,000.
(2) Issuance, Amendment and Renewal of Lender Letters of
Credit.
(a) Issuing Lender shall issue each Letter of
Credit upon the irrevocable written request of Borrower received by Collateral
Agent (who shall forward it to Issuing Lender) at least four (4) Business Days
(or such shorter time as Issuing Lender and Collateral Agent may agree in a
particular instance in their sole discretion) prior to the proposed date of
issuance. Each such request for issuance of a Lender Letter of Credit shall be
made in an original writing or by facsimile in the form of an L/C Application,
and shall specify in form and detail satisfactory to Issuing Lender: (i) the
proposed date of issuance of the Lender Letter of Credit (which shall be a
Business Day); (ii) the face amount of the Lender Letter of Credit, which shall
be expressed in U.S. dollars; (iii) the expiry date of the Lender Letter of
Credit; (iv) the name and address of the beneficiary thereof; (v) the documents
to be presented by the beneficiary of the Lender Letter of Credit in case of any
drawing thereunder; (vi) the full text of any certificate to be presented by the
beneficiary in case of any drawing thereunder; and (vii) such other matters as
Issuing Lender may require.
(b) Unless Issuing Lender has received, on or
before the Business Day immediately preceding the date Issuing Lender is to
issue a requested Lender Letter of Credit, notice from Collateral Agent
directing Issuing Lender not to issue such Lender Letter of Credit because such
issuance is not then permitted hereunder, then subject to the terms and
conditions hereof, Issuing Lender shall, on the requested date, issue a Lender
Letter of Credit for the account of Borrower in accordance with Issuing Lender's
usual and customary business practices.
(c) From time to time while a Lender Letter of
Credit is outstanding and prior to the Termination Date, Issuing Lender may upon
the written request of Borrower received by Collateral Agent (who shall forward
it to Issuing Lender) at least five (5) Business Days (or which shorter time as
Issuing Lender and Collateral Agent may agree in a particular instance in their
sole discretion) prior to the proposed date of amendment, amend any Lender
Letter of Credit issued by it. Each such request for amendment of a Lender
Letter of Credit shall be made in an original writing or by facsimile, made in
the form of an L/C Amendment Application and shall specify in form and detail
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satisfactory to Issuing Lender; (i) the Lender Letter of Credit to be amended;
(ii) the proposed date of amendment of such Lender Letter of Credit (which shall
be a Business Day); (iii) the nature of the proposed amendment; and (iv) such
other matters as Issuing Lender may require. Issuing Lender shall have no
obligation to amend any Lender Letter of Credit. Collateral Agent will promptly
notify Lenders of the receipt by it of any L/C Application or L/C Amendment
Application.
(d) Issuing Lender and Lenders agree that, while a
Lender Letter of Credit is outstanding and prior to the Termination Date, upon
the written request of Borrower received by Collateral Agent (who shall forward
it to Issuing Lender) at least five (5) Business Days (or such shorter time as
Issuing Lender and Collateral Agent may agree in a particular instance in their
sole discretion) prior to the proposed date of notification of renewal, Issuing
Lender shall be entitled to authorize the automatic renewal of any Lender Letter
of Credit issued by it. East such request for renewal of a Lender Letter of
Credit shall be made in an original writing or by facsimile in the form of an
L/C Amendment Application, and shall specify in form and detail satisfactory to
Issuing Lender: (i) the Lender Letter of Credit to be renewed; (ii) the proposed
date of notification of renewal of such Lender Letter of Credit (which shall be
a Business Day); (iii) the revised expiry date of such Lender Letter of Credit
(which, unless all Lenders otherwise consent, shall be prior to the Termination
Date); and (iv) such other matters as Issuing Lender may require. Issuing Lender
shall be under no obligation to renew any Lender Letter of Credit. If any
outstanding Lender Letter of Credit shall provide that it shall be automatically
renewed unless the beneficiary thereof receives notice from Issuing Lender that
such Lender Letter of Credit shall not be renewed, and if at the time of renewal
Issuing Lender would be entitled to authorize the automatic renewal of such
Lender Letter of Credit in accordance with this subsection 2.1(G)(2)(d) upon the
request of Borrower, but Issuing Lender shall not have received any L/C
Amendment Application from Borrower with respect to such renewal or other
written direction by Borrower with respect thereto, Issuing Lender shall
nonetheless be permitted to allow such Lender Letter of Credit to renew, and
Borrower and Lenders hereby authorize such renewal, and, accordingly, Issuing
Lender shall be deemed to have received an L/C Amendment Application from
Borrower requesting such renewal.
(e) Issuing Lender may, at its election (or as
required by Collateral Agent at the direction of Lenders holding the aggregate
Pro Rata Shares required under the applicable provision of this Agreement, as
applicable), deliver any notices of termination or other communications to any
Lender Letter of Credit beneficiary or transferee, and take any other action as
necessary or appropriate, at any time and from time to time, in order to cause
the expiry date of such Lender Letter of Credit to be a date not later than the
Termination Date.
(f) This Agreement shall control in the event of
any conflict with any L/C-Related Document (other than any Lender Letter of
Credit).
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(g) Issuing Lender will deliver to Collateral
Agent concurrently or promptly following its delivery of a Lender Letter of
Credit, or amendment to or renewal of a Lender Letter of Credit, to an advising
bank or a beneficiary, a true and complete copy of each such Lender Letter of
Credit or amendment to or renewal of a Lender Letter of Credit.
(3) Risk Participations, Drawings and Reimbursements.
(a) Immediately upon the issuance of each Lender
Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from Issuing Lender a participation in which
Lender Letter of Credit and each drawing thereunder in an amount equal to such
Lenders Pro Rata Share of the maximum amount available to be drawn under such
Lender Letter of Credit and the amount of such drawing, respectively.
(b) In the event of any request for a drawing
under a Lender Letter of Credit by the beneficiary or transferee thereof,
Issuing Lender will promptly notify Borrower and Collateral Agent. Borrower
shall reimburse Issuing Lender prior to 11:00 a.m., Central time, on each date
that any amount is to be paid by Issuing Lender under any Lender Letter of
Credit (each such date, an "Honor Date"), in an amount equal to the amount so
paid by Issuing Lender. If Borrower fails to reimburse Issuing Lender for the
full amount of any drawing under any Lender Letter of Credit by 11:00 a.m.,
Central time, on the Honor Date, Issuing Lender will notify Collateral Agent
thereof by 11:30 a.m., Central time, on the Honor Date, and Collateral Agent
will notify each Lender thereof by 12:30 p.m., Central time, on the Honor Date,
and Borrower shall be deemed to have requested that Base Rate Revolving Loans be
made by Lenders to be disbursed on the Honor Date under such Lender Letter of
Credit. Any notice given by Issuing Lender or Collateral Agent pursuant to this
subsection 2.1(G)(3)(b) may be oral if immediately confirmed in writing
(including by facsimile); provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such
notice.
(c) Each Lender shall upon any notice from
Collateral Agent pursuant to subsection 2.1(G)(3)(b) make available to
Collateral Agent for the account of Issuing Lender an amount in U.S. Dollars and
in immediately available funds equal to its Pro Rata Share of the amount of the
drawing, whereupon the participating Lenders shall each be deemed to have made a
Base Rate Revolving Loan to Borrower in such amount. If any Lender so notified
fails to make available to Collateral Agent for the account of Issuing Lender
the amount of such Lender's Pro Rata Share of the amount of such drawing by 2:00
p.m., Central time, on the Honor Date, then interest shall accrue on such
Lender's obligation to make such payment, from the Honor Date to the date such
Lender makes such payment, at a rate per annum equal to the Federal Funds
Effective Rate in effect from time to time during such period plus fifty (50)
basis points. Collateral Agent will promptly give notice of the occurrence of
the Honor Date, but failure of Collateral Agent to give any such notice on the
Honor Date or in sufficient time to enable any Lender to effect such payment
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on such date shall not relieve such Lender from its obligations under this
subsection 2.1(G)(3)(c).
(d) With respect to any unreimbursed drawing that
is not converted into Base Rate Revolving Loans in whole or in part, for any
reason, Borrower shall be deemed to have incurred from Issuing Lender an L/C
Borrowing in the amount of such drawing, which L/C Borrowing shall be due and
payable on demand (together with interest) and shall bear interest at a rate per
annum equal to the highest Interest Rate then applicable to Base Rate Revolving
Loans plus 2% per annum, and each Lender's payment to Issuing Lender pursuant to
subsection 2.1(G)(3)(c) shall be deemed payment in respect of its participation
in such L/C Borrowing and shall constitute an L/C Advance from such Lender in
satisfaction of its participation obligation under this subsection 2.1(G)(3).
(e) Each Lender's obligation in accordance with
this Agreement to make Loans or L/C Advances, as contemplated by this subsection
2.1(G)(3), as a result of a drawing under a Lender Letter of Credit, shall be
absolute and unconditional and without recourse to Issuing Lender and shall not
be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against Issuing
Lender, Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of an Event of Default, a Default or a material
adverse event with respect to Borrower or (iii) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(4) Repayment of Participations.
(a) Upon (and only upon) receipt by Collateral
Agent for the account of Issuing Lender of immediately available funds from
Borrower (i) in reimbursement of any payment made by Issuing Lender under a
Lender Letter of Credit with respect to which any Lender has paid Collateral
Agent for the account of Issuing Lender for such Lender's participation in such
Lender Letter of Credit pursuant to subsection 2.1(G)(3) or (ii) in payment of
interest thereon, Collateral Agent will pay to each Lender, in the same funds as
those received by Collateral Agent for the account of Issuing Lender, the amount
of such Lender's Pro Rata Share of such funds, and Issuing Lender shall receive
the amount of the Pro Rata Share of such funds of any Lender that did not so pay
Collateral Agent for the account of the Issuing Lender.
(b) If Collateral Agent or Issuing Lender is
required at any time to return to Borrower or to a trustee, receiver, liquidator
or custodian, or to any official in any Insolvency Proceeding, any portion of
any payment made by Borrower to Collateral Agent for the account of Issuing
Lender pursuant to subsection 2.1(G)(4)(a) in reimbursement of a payment made
under a Lender Letter of Credit or interest or fee thereon, each Lender shall,
on demand of Collateral Agent, forthwith return to Collateral Agent or Issuing
Lender the amount of its Pro Rata Share of any amount so returned by Collateral
Agent or Issuing Lender plus interest thereon from the date such demand is made
to the date
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such amount is returned by such Lender to Collateral Agent or Issuing Lender, at
a rate per annum equal to the Federal Funds Effective Rate in effect from time
to time plus fifty (50) basis points.
(H) Role of the Issuing Lender.
(1) No Obligation to Inquire.
Each Lender and Borrower agree that, in paying any drawing
under a Lender Letter of Credit, Issuing Lender shall not have any
responsibility to obtain any document (other than any sight draft and
certificate expressly required by such Lender Letter of Credit) or to ascertain
or inquire as to the validity or accuracy of any such document or the authority
of the Person executing or delivering any such document.
(2) No Liability to Lenders.
Neither Issuing Lender nor any of its respective
correspondents, participants or assignees shall be liable to any Lender for: (a)
any action taken or omitted in connection herewith at the request or with the
approval of Lenders (including Requisite Lenders, as applicable); (b) any action
taken or omitted in the absence of gross negligence or willful misconduct; or
(c) the due execution, effectiveness, validity or enforceability of any
L/C-Related Document.
(3) No Liability to Borrower.
Borrower hereby assumes all risks of the acts or omissions of
any beneficiary or transferee with respect to its use of any Lender Letter of
Credit; provided that this assumption is not intended to, and shall not,
preclude Borrower's pursuing such rights and remedies as it may have against the
beneficiary or transferee at law or under any other agreement. Neither Issuing
Lender nor any of its respective correspondents, participants or assignees shall
be liable or responsible for any of the matters described in subsection 2.1(I);
provided, that, anything in such clauses to the contrary notwithstanding,
Borrower may have a claim against Issuing Lender, and Issuing Lender may be
liable to Borrower, to the extent, but only to the extent, of any direct, as
opposed to consequential or exemplary, damages suffered by Borrower which
Borrower proves were caused by Issuing Lender's willful misconduct or gross
negligence or Issuing Lender's willful failure to pay under any Lender Letter of
Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of such Lender
Letter of Credit. In furtherance and not in limitation of the foregoing: (i)
Issuing Lender may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice of
information to the contrary; and (ii) Issuing Lender shall not be responsible
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Lender Letter of Credit or the
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rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason.
(I) Obligations Absolute. The obligations of Borrower
under this Agreement and any L/C-Related Document to reimburse Issuing Lender
for a drawing under a Lender Letter of Credit, and to repay any L/C Borrowing
and any drawing under a Lender Letter of Credit converted into Base Rate
Revolving Loans, shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and each such other
L/C-Related Document under all circumstances, including the following:
(1) any lack of validity of enforceability of this
Agreement or any L/C-Related Document;
(2) any change in the time, manner or place of
payment of, or in any other term of, all or any of the obligations of Borrower
in respect of any Lender Letter of Credit or any other amendment or waiver of or
any consent to departure from all or any of the L/C-Related Documents, other
than an improper payment by Issuing Lender under a Lender Letter of Credit;
(3) the existence of any claim, set-off, defense
or other right that Borrower may have at any time against any beneficiary or any
transferee of any Lender Letter of Credit or Bank Letter of Credit (or any
Person for whom any such beneficiary or any such transferee may be acting),
Issuing Lender or any other Person, whether in connection with this Agreement,
the transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(4) any draft, demand, certificate or other
document presented under any Lender Letter of Credit or Bank Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any Lender Letter of Credit;
(5) any payment under any Lender Letter of Credit
or Bank Letter of Credit against presentation of a draft or certificate that
does not strictly comply with the terms of such Lender Letter of Credit; or any
payment made by Issuing Lender under any Lender Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other representative of or
successor to any beneficiary or any transferee of any Lender Letter of Credit,
including any arising in connection with any Insolvency Proceeding;
(6) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to departure
from any guarantee, for all or any of the obligations of Borrower in respect of
any Lender Letter of Credit; or
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(7) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, Borrower or a guarantor.
(J) Cash Collateral Pledge. If (1) any Lender Letter of
Credit remains outstanding partially or wholly undrawn as of the Termination
Date or (2) Borrower is required to Cash Collateralize Lender Letters of Credit
pursuant to subsection 2.4(C) or 8.3 then Borrower shall immediately Cash
Collateralize the Letter of Credit Liability in an amount equal to 105% of the
Letter of Credit Reserve at such time.
(K) Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits as published by the International Chamber of
Commerce most recently at the time of issuance of any Lender Letter of Credit
shall (unless otherwise expressly provided in such Lender Letter of Credit)
apply to each Lender Letter of Credit.
(L) Availability of Lender's Share.
(1) Unless Collateral Agent receives written
notice from a Lender on or prior to any Funding Date, that such Lender will not
make available as and when required hereunder to Collateral Agent for the
account of Borrower the amount of that Lender's Pro Rata Share of such Lender's
Total Loan Commitment, Collateral Agent may assume that each Lender has made
such amount available to Collateral Agent in immediately available funds on the
Funding Date and Collateral Agent may (but shall not be so required), in
reliance upon such assumption, make available to Borrower on such date a
corresponding amount.
(2) A Defaulting Lender shall pay interest at the
Federal Funds Effective Rate plus fifty (50) basis points on the Defaulted
Amount from the Business Day following the applicable Funding Date of such
Defaulted Amount until the date such Defaulted Amount is paid to Collateral
Agent. A notice of Collateral Agent submitted to any Lender with respect to
amounts owing under this subsection shall be conclusive, absent manifest error.
If such amount is not paid when due to Collateral Agent, Collateral Agent, at
its option, may notify Borrower of such failure to fund and, upon demand by
Collateral Agent, Borrower shall pay the unpaid amount to Collateral Agent for
Collateral Agent's account, together with interest thereon for each day elapsed
since the date of such borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loan made by the other Lenders on such Funding
Date. The failure of any Lender to make available any portion of its Commitment
on any Funding Date or to fund its participation in a Lender Letter of Credit
shall not relieve any other Lender of any obligation hereunder to fund such
Lender's Commitment on such Funding Date or to fund any such participation, but
no Lender shall be responsible for the failure of any other Lender to make such
other Lender's Commitment on any Funding Date or to fund any participation to be
funded by any other Lender.
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(3) Collateral Agent shall not be obligated to
transfer to a Defaulting Lender any payment made by Borrower to Collateral Agent
or any amount otherwise received by Collateral Agent for application to the
Obligations nor shall a Defaulting Lender be entitled to the sharing of any
interest, fees or payments hereunder.
(4) For purposes of voting or consenting to
matters with respect to the Loan Documents and determining Pro Rata Shares, a
Defaulting Lender shall be deemed not to be a "Lender" and such Lender's
Commitments shall be deemed to be zero.
2.2. Interest.
(A) Rate of Interest.
(1) The Term Loan shall bear interest (the "Term
Loan Interest Rate") from the date the Term Loan is made to the date paid at a
rate per annum equal to (i) in the case of a LIBOR Term Loan, LIBOR plus the
Applicable Term Loan Margin and (ii) in the case of a Base Rate Term Loan, the
Base Rate plus the Applicable Term Loan Margin. The applicable basis for
determining the rate of interest shall be selected by Borrower initially at the
time the Borrowing Request is given pursuant to subsection 2.1(D)(1).
(2) The Revolving Loans and all other Obligations
(other than the Term Loan) shall bear interest (the "Revolving Loan Interest
Rate") from the date such Revolving Loans are made or such other Obligations
become due to the date paid at a rate per annum equal to (i) in the case of a
Base Rate Revolving Loan and other Obligations for which no other interest rate
is specified, the Base Rate plus the Applicable Revolving Loan Margin and (ii)
in the case of a LIBOR Revolving Loan, LIBOR plus the Applicable Revolving Loan
Margin. The applicable basis for determining the rate of interest shall be
selected by Borrower initially at the time a Borrowing Request is given pursuant
to subsection 2.1(D)(1).
(3) The basis for determining the interest rate
with respect to any Loan or a portion of any Loan may be changed from time to
time pursuant to subsection 2.2(D). If on any day a Loan or a portion of any
Loan is outstanding with respect to which notice has not been delivered to
Collateral Agent in accordance with the terms of this Agreement specifying the
basis for determining the rate of interest, then for that day that Loan or
portion thereof shall bear interest determined by reference to the Base Rate.
(4) After the occurrence and during the
continuance of an Event of Default (i) the Loans and all other Obligations
shall, unless Requisite Lenders otherwise determine, bear interest at a rate per
annum equal to two percent (2%) plus the otherwise applicable Interest Rate (the
"Default Rate"), (ii) each LIBOR Loan shall automatically convert to a Base Rate
Loan at the end of any applicable Interest Period and (iii) no Loans may be
converted to LIBOR Loans.
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(B) Computation and Payment of Interest.
Interest on the Loans and all other Obligations shall be
computed on the daily principal balance on the basis of a 360 day year for the
actual number of days elapsed in the period during which it accrues. In
computing interest on any Loan, the date of funding of the Loan or the first day
of an Interest Period applicable to such Loan or, with respect to a Base Rate
Loan being converted from a LIBOR Loan, the date of conversion of such LIBOR
Loan to such Base Rate Loan, shall be included; and the date of payment of such
Loan or the expiration date of an Interest Period applicable to such Loan, or
with respect to a Base Rate Loan being converted to a LIBOR Loan, the date of
conversion of such Base Rate Loan to such LIBOR Loan, shall be excluded;
provided that if a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on that Loan. Interest on Base Rate Loans and all other
Obligations other than LIBOR Loans shall be payable to Collateral Agent for the
benefit of Lenders monthly in arrears on the first day of each calendar month,
on the date of any prepayment of Loans, and at maturity, whether by acceleration
or otherwise. Interest on LIBOR Loans shall be payable to Collateral Agent for
the benefit of Lenders on the last day of the applicable Interest Period for
such Loans, on the date of any prepayment of such Loans, and at maturity,
whether by acceleration or otherwise. In addition, for each LIBOR Loan having an
Interest Period longer than three (3) months, interest accrued on such Loan
shall also be payable on the last day of each three (3) month interval during
such Interest Period.
(C) Interest Laws.
Notwithstanding any provision to the contrary contained in
this Agreement or any other Loan Document, Borrower shall not be required to
pay, and neither any Agent nor any Lender shall be permitted to collect, any
amount of interest in excess of the maximum amount of interest permitted by
applicable law ("Excess Interest"). If any Excess Interest is provided for or
determined by a court of competent jurisdiction to have been provided for in
this Agreement or in any other Loan Document, then in such event: (1) the
provisions of this subsection shall govern and control; (2) neither Borrower nor
any other Loan Party shall be obligated to pay any Excess Interest; (3) any
Excess Interest that any Agent or any Lender may have received hereunder shall
be, at such Lender's option, (a) applied as a credit against the outstanding
principal balance of the Obligations or accrued and unpaid interest (not to
exceed the maximum amount permitted by law), (b) refunded to the payor thereof,
or (c) any combination of the foregoing; (4) the interest rate(s) provided for
herein shall be automatically reduced to the maximum lawful rate allowed from
time to time under applicable law (the "Maximum Rate"), and this Agreement and
the other Loan Documents shall be deemed to have been and shall be, reformed and
modified to reflect such reduction; and (5) neither Borrower nor any Loan Party
shall have any action against any Agent or any Lender for any damages arising
out of the payment or collection of any Excess Interest. Notwithstanding the
foregoing, if for any period of time interest on any Obligations is calculated
at the Maximum Rate rather than
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the applicable rate under this Agreement, and thereafter such applicable rate
becomes less than the Maximum Rate, the rate of interest payable on such
Obligations shall remain at the Maximum Rate until each Lender shall have
received the amount of interest which such Lender would have received during
such period on such Obligations had the rate of interest not been limited to the
Maximum Rate during such period.
(D) Continuation and Conversion Elections.
By delivering a Continuation/ Conversion Notice to Collateral
Agent on or before 11:00 a.m., Central time, on a Business Day, Borrower may
from time to time irrevocably elect on not less than three (3) Business Days'
notice that the total amount, or any portion in an aggregate minimum amount of
$500,000 and an integral multiple of $100,000, of any Loans be, in the case of
Base Rate Loans, converted into LIBOR Loans or, in the case of LIBOR Loans, be
converted into a Base Rate Loan or continued as a LIBOR Loan (in the absence of
delivery of a Continuation/Conversion Notice with respect to any LIBOR Loan at
least three (3) Business Days before the last day of the then current Interest
Period with respect thereto, such LIBOR Loan shall, on such last day,
automatically convert to a Base Rate Loan); provided, however, that (i) each
such conversion or continuation shall be pro-rated among the applicable
outstanding Loans of all Lenders, and (ii) no portion of the outstanding
principal amount of any Loans may be continued as, or be converted into, LIBOR
Loans when any Default or an Event of Default has occurred and is continuing.
2.3. Fees.
(A) Fee Letter.
In addition to all interest, fees and charges set forth in
this Agreement and the other Loan Documents, Borrower shall pay to Collateral
Agent, for the account of the parties specified therein, such fees and charges
as are set forth in the certain Fee Letter of even date herewith executed by
Borrower in favor of Collateral Agent (the "Fee Letter"), at such times as are
set forth in the Fee Letter.
(B) Unused Line Fee.
Borrower shall pay to Collateral Agent, for the benefit of
Lenders, a per annum fee in an amount equal to (a) the Revolving Loan Commitment
less (b) the sum of (i) the average daily balance of the Revolving Loan plus
(ii) the average daily face amount of the Lender Letter of Credit Reserve during
the preceding calendar month multiplied by (c) the Applicable Non-Use Fee
Margin, such fee to be calculated on the basis of a 360 day year for the actual
number of days elapsed and to be payable monthly in arrears on the first day of
the first calendar month following the Closing Date and the first day of each
calendar month thereafter.
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(C) Letter of Credit Fees.
Borrower shall pay to Collateral Agent, for the benefit of
Lenders, a fee with respect to each Lender Letter of Credit in the amount of the
average daily amount of Letter of Credit Liability with respect to such Lender
Letter of Credit, multiplied by two and one-quarter percent (2.25%) per annum,
computed on a quarterly basis in advance on the first Business Day of each
calendar quarter. Such fees will be calculated on the basis of a 360 day year
for the actual number of days elapsed and will be payable on the first day of
each calendar quarter during which Lender Letters of Credit are outstanding,
commencing on the first such quarterly date to occur after the date hereof.
Borrower shall also pay to Collateral Agent, for the benefit of Issuing Lender,
a letter of credit fronting fee for each Lender Letter of Credit issued by
Issuing Lender on the date of issuance thereof at a rate per annum equal to
one-quarter of one percent (0.25%) of the maximum original stated amount of such
Lender Letter of Credit. Such fronting fee will be calculated on the basis of a
360 day year. Borrower shall also pay to Issuing Lender from time to time (i)
the normal issuance, presentation, amendment and other processing fees and other
standard costs and charges of Issuing Lender relating to Lender Letters of
Credit as from time to time in effect and (ii) for the benefit of Issuing Lender
and any other applicable Agent or Lender, any and all fees and expenses, if any,
paid by any such Person to the issuer of any Bank Letter of Credit. Issuing
Lender shall from time to time, on request by Borrower, provide Borrower with a
written schedule of all such fees, costs and charges of Issuing Lender in
respect of Lender Letters of Credit and all such fees and expenses of any issuer
of Bank Letters of Credit (to the extent available to Issuing Lender).
(D) Prepayment Fees.
If (1) Borrower voluntarily prepays the Obligations in full
or, in the case of any voluntary prepayment of the Term Loan, in part (other
than (a) voluntary prepayments of the Revolving Loan which do not terminate the
Revolving Loan Commitment or (b) any prepayment made pursuant to subsection
2.11) or (2) Borrower repays the Obligations in full or in part after or in
connection with the occurrence of a Change of Control, Borrower, at the time of
prepayment, shall pay to Collateral Agent, for the benefit of Lenders, as
compensation for the costs of being prepared to make funds available to Borrower
under this Agreement, and not as a penalty, the applicable amount set forth in
the Fee Letter. No prepayment fees shall be applicable to any mandatory
prepayment of all or any part of the Obligations under subsection 2.4(b)(2) or
subsection 2.4(b)(3).
(E) Audit Fees.
Borrower agrees to pay to Collateral Agent for its own account
an audit fee for each inspection equal to $750 per auditor per day or any
portion thereof, excluding all full days spent by Collateral Agent traveling to
or from Borrower's locations, together with out of pocket fees, costs and
expenses (including any of the same paid to any auditors not employed by
Collateral Agent).
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(F) Other Fees and Expenses.
Borrower shall pay to Collateral Agent, for the account of the
applicable Agent, all charges for returned items and all other bank charges
incurred by such Agent, as well as such Agent's standard wire transfer charges
for each wire transfer made under this Agreement.
2.4. Payments and Prepayments.
(A) Manner and Time of Payment.
In its sole discretion, Collateral Agent may charge interest
and other amounts payable hereunder to the Revolving Loan, all as set forth on
Collateral Agent's books and records. If Collateral Agent elects to bill
Borrower for any amount due hereunder, such amount shall be immediately due and
payable with interest thereon as provided herein. All payments made by Borrower
with respect to the Obligations shall be made without deduction, defense, setoff
or counterclaim. All payments hereunder shall, unless otherwise directed by
Collateral Agent, be made to Agent's Account or in accordance with subsection
5.6. Proceeds received in immediately available federal funds in Agent's Account
at or before 2:00 p.m. Central time on any Business Day shall be credited to the
Obligations for all purposes on the same Business Day on which such proceeds
were received; proceeds received after such time will be credited on the next
Business Day thereafter. Notwithstanding the foregoing, so long as no Default or
Event of Default is then in existence, if all Revolving Loans outstanding at the
time of receipt of any such proceeds in Agent's Account are LIBOR Loans, then
Borrower may direct that such proceeds be held by Collateral Agent in a
non-interest bearing cash collateral account maintained by Collateral Agent
until the earliest to occur of (1) receipt by Collateral Agent of a direction by
Borrower for the disbursement of such proceeds by Collateral Agent, (2) the
expiration of an Interest Period relating to LIBOR Revolving Loans, in which
case such proceeds shall be applied to the payment of principal of the
applicable LIBOR Revolving Loans, (3) the existence of outstanding Obligations
in respect of Base Rate Revolving Loans, in which case such proceeds shall be
applied to the payment of principal of such Base Rate Revolving Loans or (4) a
Default or an Event of Default, in which case such proceeds shall be applied as
Collateral Agent shall determine.
(B) Mandatory Prepayments.
(1) Overadvance.
At any time that the Revolving Loan exceeds the Maximum
Revolving Loan Amount, Borrower shall immediately repay the Revolving Loan to
the extent necessary to reduce the principal balance to an amount equal to or
less than the Maximum Revolving Loan Amount.
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(2) Proceeds of Asset Dispositions.
Immediately upon receipt by Borrower or any of its
Subsidiaries of proceeds of any Asset Disposition at any time that the aggregate
amount of such proceeds exceed $2,000,000 in any Fiscal Year, Borrower shall
prepay the Obligations in an amount equal to the amount of such proceeds in
excess of $2,000,000. If Borrower reasonably expects the proceeds of any Asset
Disposition to be reinvested within 180 days to repair or replace such assets
with like assets, Borrower shall deliver the proceeds to Collateral Agent to be
applied to the Revolving Loan, and Borrower may, so long as no Default or Event
of Default shall have occurred and be continuing, reborrow such proceeds only
for such repair or replacement If Borrower fails to reinvest such proceeds
within 180 days, Borrower hereby authorizes Lenders to make a Revolving Advance
to repay the Term Loan as required hereby and/or if the Term Loan has been
repaid, the Revolving Loan Commitment shall be permanently reduced as provided
herein.
All such prepayments shall be applied in payment of Scheduled
Installments of the Term Loan, in inverse order of maturity, and, at any time
after the Term Loan shall have been repaid in full, such payments shall be
applied as a permanent reduction of the Revolving Loan Commitment.
(3) Prepayments from Excess Cash Flow.
On or prior to the earlier to occur of (1) one hundred (100)
days after the end of each Fiscal Year and (2) ten (10) days after receipt by
Collateral Agent and Administrative Agent of Borrower's audited financial
statements for such Fiscal Year delivered pursuant to subsection 5.1(C),
Borrower shall prepay the Obligations in an amount equal to (a) for the 1999
Fiscal Year, fifty percent (50%) of Excess Cash Flow for such prior Fiscal Year
and (b) for each Fiscal Year other than the 1999 Fiscal Year, twenty-five
percent (25%) of Excess Cash Flow for such prior Fiscal Year, in each case
calculated on the basis of the audited financial statements for such Fiscal Year
delivered to Collateral Agent and Administrative Agent pursuant to subsection
5.1(C). All such prepayments from Excess Cash Flow shall be applied in payment
of Scheduled Installments of the Term Loan in inverse order of maturity, and, at
any time after the Term Loan shall have been repaid in full, such payments shall
be applied as a permanent reduction of the Revolving Loan Commitment.
Concurrently with the making of any such payment, Borrower shall deliver to
Collateral Agent and Administrative Agent a certificate of Borrower's chief
executive officer or chief financial officer demonstrating its calculation of
the amount required to be paid.
(C) Voluntary Prepayments and Repayments.
Borrower may, at any time upon not less than three Business
Days' prior notice to Collateral Agent and Administrative Agent, prepay all or
any portion of the Term Loan or prepay all or any portion of, or terminate, the
Revolving Loan Commitment;
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provided, however, the Revolving Loan Commitment may not be terminated by
Borrower until the Term Loan is paid in full. Upon termination of the Revolving
Loan Commitment, Borrower shall cause each Agent and each Lender to be released
from all liability under any Lender Letters of Credit or, at Collateral Agent's
option, Borrower will Cash Collateralize the Letter of Credit Liability.
(D) Payments on Business Days.
Whenever any payment to be made hereunder shall be stated to
be due on a day that is not a Business Day, the payment may be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the amount of interest or fees due hereunder.
2.5. Term of this Agreement.
This Agreement shall be effective until April 15, 2001 (the
"Original Term") and may, upon the written request of Borrower not less than
ninety (90) days prior to the end of the Original Term or the first Renewal
Term, as applicable, and the written agreement of all Agents and all Lenders, be
renewed for two additional terms of one year each thereafter (each such year a
"Renewal Term"). The last day of the Original Term, or if applicable, any
Renewal Term, is hereinafter referred to as the "Termination Date." Borrower
acknowledges that Agents and Lenders may, in their sole discretion, (a)
condition any agreement by Agents and Lenders to renew this Agreement upon such
changes and modifications to this Agreement as are acceptable to Agents and
Lenders, including without limitation changes in interest rates, fees and other
pricing mechanisms and (b) charge renewal fees satisfactory to Agents and
Lenders in connection with any such renewal. The Commitments shall (unless
earlier terminated) terminate upon the earlier of (i) the occurrence of an event
specified in subsection 8.3 or (ii) the Termination Date. Upon termination in
accordance with subsection 8.3 or on the Termination Date, all Obligations shall
become immediately due and payable without notice or demand. Notwithstanding any
termination, until all Obligations have been fully paid and satisfied,
Collateral Agent, on behalf of Agents and Lenders, shall be entitled to retain
security interests in and liens upon all Collateral, and even after payment of
all Obligations hereunder, Borrower's obligation to indemnify each Agent and
each Lender in accordance with the terms hereof shall continue.
2.6. Statements.
Collateral Agent shall render a monthly statement of account
to Borrower within twenty (20) days after the end of each calendar month. Such
statement of account shall constitute an account stated unless Borrower makes
written objection thereto within sixty (60) days from the date such statement is
mailed to Borrower. Borrower promises to pay all of its Obligations as such
amounts become due or are declared due pursuant to the terms of this Agreement.
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2.7. Grant of Security Interest.
To secure the payment and performance of the Obligations,
including all renewals, extensions, restructurings and refinancings of any or
all of the Obligations, Borrower hereby grants to Collateral Agent, on behalf of
Agents and Lenders, a continuing security interest, lien and mortgage in and to
all right, title and interest of Borrower in the following property of Borrower,
whether now owned or existing or hereafter acquired or arising and regardless of
where located (all being collectively referred to as the "Collateral"): (A)
Accounts, and all guaranties and security therefor, and all goods and rights
represented thereby or arising therefrom including the rights of stoppage in
transit, replevin and reclamation; (B) Inventory; (C) general intangibles (as
defined in the UCC), including without limitation Intellectual Property; (D)
documents (as defined in the UCC) or other receipts covering, evidencing or
representing goods; (E) instruments (as defined in the UCC); (F) chattel paper
(as defined in the UCC); (G) Equipment; (H) Mortgaged Property; (I) investment
property (as defined in the UCC); (J) all deposit accounts of Borrower
maintained with any bank or financial institution; (K) all cash and other monies
and property of Borrower in the possession or under the control of any Agent,
any Lender or any participant; (L) all amounts held in trust by Borrower for
unpaid cash sellers of livestock or live poultry; (M) all books, records, ledger
cards, files, correspondence, computer programs, tapes, disks and related data
processing software that at any time evidence or contain information relating to
any of the property described above or are otherwise necessary or helpful in the
collection thereof or realization thereon; and (N) proceeds of all or any of the
property described above, including, without limitation, the proceeds of any
insurance policies covering any of the above described property.
2.8. Capital Adequacy and Other Adjustments.
In the event any Agent or any Lender shall have determined
that the adoption after the date hereof of any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, reserve requirements or similar requirements or compliance by such
Agent or such Lender or any corporation controlling such Agent or such Lender
with any request or directive regarding capital adequacy, reserve requirements
or similar requirements (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) from any central bank or
governmental agency or body having jurisdiction and which generally applies to
Persons similarly situated to such Agent or Lender, does or shall have the
effect of increasing the amount of capital, reserves or other funds required to
be maintained by such Agent or such Lender or any corporation controlling such
Agent or such Lender and thereby reducing the rate of return on such Agent's or
such Lender's or such corporation's capital as a consequence of its obligations
hereunder, then Borrower shall from time to time within thirty (30) days after
notice and demand from such Lender or such Agent (with a copy to Administrative
Agent) (together with the certificate referred to in the next sentence) pay to
such Agent or such Lender additional amounts sufficient to compensate such Agent
or such
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Lender for such reduction. A certificate as to the amount of such cost and
showing the basis of the computation of such cost submitted by any Agent or any
Lender to Borrower shall, absent manifest error, be final, conclusive and
binding for all purposes.
2.9. Taxes.
(A) No Deductions.
Any and all payments or reimbursements made hereunder or under
the Revolving Notes or Term Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto; excluding, however, the
following: taxes imposed on the net income of any Lender or any Agent by the
jurisdiction under the laws of which such Agent or such Lender is organized or
doing business or any political subdivision thereof (including without
limitation the Michigan Single Business Tax) and taxes imposed on its net income
by the jurisdiction of such Agent's or such Lender's applicable lending office
or any political subdivision thereof (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
excluding such taxes imposed on net income, herein "Tax Liabilities"). If
Borrower shall be required by law to deduct any such Tax Liabilities from or in
respect of any sum payable hereunder to any Agent or any Lender, then the sum
payable hereunder shall be increased as may be necessary so that, after making
all required deductions, such Agent or such Lender receives an amount equal to
the sum it would have received had no such deductions been made.
(B) Changes in Tax Laws.
In the event that, subsequent to the Closing Date, (i) any
changes in any existing law, regulation, treaty or directive or in the
interpretation or application thereof, (ii) any new law, regulation, treaty or
directive enacted or any interpretation or application thereof, or (iii)
compliance by any Agent or any Lender with any request or directive (whether or
not having the force of law) from any governmental authority, agency or
instrumentality:
(1) does or shall subject any Agent or any Lender
to any tax of any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made or Lender Letters of Credit issued hereunder, or
change the basis of taxation of payments to such Agent or such Lender of
principal, fees, interest or any other amount payable hereunder (except for net
income taxes, or franchise taxes imposed in lieu of net income taxes, imposed
generally by federal, state or local taxing authorities with respect to interest
or commitment or other fees payable hereunder or changes in the rate of tax on
the overall net income of such Agent or such Lender); or
(2) does or shall impose on any Agent or any
Lender any other condition or increased cost in connection with the transactions
contemplated hereby or
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participations herein; and the result of any of the foregoing is to increase the
cost to such Agent or such Lender of issuing any Lender Letter of Credit or
making or continuing any Loan hereunder, as the case may be, or to reduce any
amount receivable hereunder, then, in any such case, Borrower shall promptly pay
to such Agent or such Lender, within thirty (30) days after receipt of a request
by such Agent or such Lender, any additional amounts necessary to compensate
such Agent or such Lender, on an after-tax basis, for such additional cost or
reduced amount receivable, as determined by such Agent or such Lender with
respect to this Agreement or the other Loan Documents. If any Agent or any
Lender becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify Borrower of the event by reason of which
such Agent or such Lender has become so entitled. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by such
Agent or any Lender to Borrower shall, absent manifest error, be final,
conclusive and binding for all purposes.
(C) Foreign Lenders.
Each Lender organized under the laws of a jurisdiction outside
the United States (a "Foreign Lender") as to which payments to be made under
this Agreement or under the Revolving Notes or Term Notes, are exempt from
United States withholding tax or are subject to United States withholding tax at
a reduced rate under an applicable statute or tax treaty shall provide to
Borrower and Administrative Agent (i) a properly completed and executed Internal
Revenue Service Form 4224 or Form 1001 or other applicable form, certificate or
document prescribed by the Internal Revenue Service of the United States
certifying as to such Foreign Lender's entitlement to such exemption or reduced
rate of withholding with respect to payments to be made to such Foreign Lender
under this Agreement, or under the Revolving Notes or the Term Notes (a
"Certificate of Exemption"), or (ii) a letter from any such Foreign Lender
stating that it is not entitled to any such exemption or reduced rate of
withholding (a "Letter of Non-Exemption"). Prior to becoming a Lender under this
Agreement and within fifteen (15) days after a reasonable written request of
Borrower or Administrative Agent from time to time thereafter, each Foreign
Lender that becomes a Lender under this Agreement shall provide a Certificate of
Exemption or a Letter of Non-Exemption to Borrower and Administrative Agent.
If a Foreign Lender is entitled to an exemption with respect
to payments to be made to such Foreign Lender under this Agreement (or to a
reduced rate of withholding) and does not provide a Certificate of Exemption to
Borrower and Administrative Agent within the time periods set forth in the
preceding paragraph, Borrower shall withhold taxes from payments to such Foreign
Lender at the applicable statutory rates and Borrower shall not be required to
pay any additional amounts as a result of such withholding; provided, however,
that all such withholding shall cease upon delivery by such Foreign Lender of a
Certificate of Exemption to Borrower and Administrative Agent.
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2.10. Required Termination and Prepayment.
If on any date any Lender shall have reasonably determined
(which determination shall be final and conclusive and binding upon all parties)
that the making or continuation of its LIBOR Loans has become unlawful or
impossible by compliance by such Lender in good faith with any law, governmental
rule, regulation or order (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful), then, and in any such event,
such Lender shall promptly give notice (by telephone confirmed in writing) to
Borrower and Collateral Agent of that determination. Subject to prior withdrawal
of a Borrowing Request or a Continuation/Conversion Notice or prepayment of
LIBOR Loans as contemplated by subsection 2.11, the obligation of such Lender to
make or maintain its LIBOR Loans during any such period shall be terminated at
the earlier of the termination of the Interest Period then in effect or when
required by law and Borrower shall no later than the termination of the Interest
Period in effect at the time any such determination pursuant to this subsection
2.10 is made or, earlier when required by law, repay or prepay LIBOR Loans
together with all interest accrued thereon or convert LIBOR Loans to Base Rate
Loans.
2.11. Optional Prepayment/Replacement of Agents or Lenders
in Respect of Increased Costs.
Within fifteen (15) days after receipt by Borrower of written
notice and demand from any Agent or any Lender (an "Affected Lender") for
payment of additional costs as provided in subsection 2.8, Borrower may, at its
option, notify Collateral Agent and Administrative Agent and such Affected
Lender of its intention to do one of the following:
(A) Borrower may obtain, at Borrower's expense, a
replacement Lender ("Replacement Lender") for such Affected Lender, which
Replacement Lender shall be reasonably satisfactory to Collateral Agent and
Administrative Agent. In the event Borrower obtains a Replacement Lender within
ninety (90) days following notice of its intention to do so, the Affected Lender
shall sell and assign its Loans and Commitments to such Replacement Lender
provided, that Borrower has reimbursed such Affected Lender for its increased
costs for which it is entitled to reimbursement under this Agreement through the
date of such sale and assignment.
(B) So long as no Event of Default is then in existence,
Borrower may notify such Affected Lender of Borrower's intention to prepay in
full all outstanding Obligations owed to such Affected Lender and terminate such
Affected Lender's Commitments. So long as no Event of Default is then in
existence, Borrower shall, within ninety (90) days following notice of its
intention to do so, prepay in full all outstanding Obligations owed to such
Affected Lender (including such Affected Lender's increased costs for which it
is entitled to reimbursement under this Agreement through the date of such
prepayment) and terminate such Affected Lender's Commitments.
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2.12. Compensation.
Borrower shall compensate each Agent and each Lender, upon
written request by such Agent or such Lender (which request shall set forth in
reasonable detail the basis for requesting such amounts and which shall, absent
manifest error, be conclusive and binding upon all parties hereto), for all
reasonable actual losses, expenses and liabilities including, without
limitation, any actual loss sustained by such Agent or such Lender in connection
with the re-employment of such funds: (i) if for any reason (other than a
default by such Agent or such Lender) a borrowing of any LIBOR Loan does not
occur on a date specified therefor in a Borrowing Request or a
Continuation/Conversion Notice; (ii) if any prepayment of any of its LIBOR Loans
occurs on a date that is not the last day of an Interest Period applicable to
that Loan; (iii) if any prepayment of any of its LIBOR Loans is not made on any
date specified in a notice of prepayment given by Borrower; or (iv) as a
consequence of any other default by Borrower to repay its LIBOR Loans when
required by the terms of this Agreement; provided that during the period while
any such amounts have not been paid, Collateral Agent shall reserve an equal
amount from amounts otherwise available to be borrowed under the Revolving Loan.
All amounts owing pursuant to this subsection 2.12 shall be in addition to any
prepayment fees due and owing hereunder.
2.13. Booking of LIBOR Loans.
Each Agent and each Lender may make, carry or transfer LIBOR
Loans at, to, or for the account of, any of its branch offices or the office of
an affiliate of such Agent or such Lender, as applicable, whether or not located
in the United States.
2.14. Assumptions Concerning Funding of LIBOR Loans.
Calculation of all amounts payable to each Agent and each
Lender under subsection 2.12 shall be made as though such Agent or such Lender
had actually funded its relevant LIBOR Loan through the purchase of a
certificate of deposit bearing interest at LIBOR in an amount equal to the
amount of that LIBOR Loan and having maturity comparable to the relevant
Interest Period and through the transfer of such certificate of deposit from an
offshore office to a domestic office in the United States of America; provided,
however, that each Agent and each Lender may fund each of its LIBOR Loans in any
manner it sees fit and the foregoing assumption shall be utilized only for the
calculation of amounts payable under subsection 2.12.
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SECTION 3. CONDITIONS TO LOANS AND LENDER LETTERS OF CREDIT
3.1 Conditions to Initial Funding.
The obligations of each Agent and each Lender to make Loans and the
obligation of Issuing Lender to issue Lender Letters of Credit on the Closing
Date are subject to satisfaction of all of the conditions set forth below.
(A) Closing Deliveries.
Collateral Agent and Administrative Agent shall have received, in form
and substance satisfactory to Collateral Agent and Administrative Agent, all
documents, instruments and information identified on Schedule 3.1(A).
(B) Security Interest.
Collateral Agent and Administrative Agent shall have received
satisfactory evidence that all security interests and liens granted to
Collateral Agent, for the benefit of Agents and Lenders, pursuant to this
Agreement or the other Loan Documents have been duly perfected and constitute
first priority liens on the Collateral, subject only to Permitted Encumbrances.
(C) Closing Date Availability.
After giving effect to the consummation of the transactions
contemplated hereunder on the Closing Date and the payment by Borrower of all
costs, fees and expenses relating thereto, Excess Availability on the Closing
Date shall be at least $10,000,000.
(D) Fees.
Borrower shall have paid the fees payable on the Closing Date referred
to in the Fee Letter.
(E) Commitments.
Borrower shall have received commitments, in form and substance
satisfactory to Collateral Agent and Administrative Agent, and from institutions
satisfactory to Collateral Agent and Administrative Agent, representing Total
Loan Commitments of $170,000,000.
3.2. Conditions to All Fundings.
The obligations of each Agent and each Lender to make Loans and the
obligations of Issuing Lender to issue Lender Letters of Credit on each Funding
Date (including the initial Funding Date) are subject to satisfaction of all of
the conditions set forth below.
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(A) Deliveries.
Collateral Agent shall have received, in form and substance
satisfactory to Collateral Agent all agreements, notes, certificates, orders,
authorizations, financing statements, mortgages and other documents which any of
Collateral Agent, Documentation Agent or Administrative Agent may at any time
reasonably request under any other provision of this Agreement or any other Loan
Document.
(B) Representations and Warranties.
The representations and warranties contained herein and in the Loan
Documents shall be true, correct and complete in all material respects on and as
of that Funding Date to the same extent as though made on and as of that date,
except for any representation or warranty limited by its terms to a specific
date and taking into account any disclosures made by Borrower to Collateral
Agent and Administrative Agent after the Closing Date whether made pursuant to a
specific requirement of this Agreement or otherwise, and which have been
approved by Agents.
(C) No Default.
No event shall have occurred and be continuing or would result from
the consummation of the requested borrowing or notice requesting issuance of a
Lender Letter of Credit that would constitute an Event of Default or a Default.
(D) Performance of Agreements.
Each Loan Party shall have performed in all material respects all
agreements and satisfied all conditions which any Loan Document provides shall
be performed by it on or before that Funding Date.
(E) No Prohibition.
No order, judgment or decree of any court, arbitrator or governmental
authority shall purport to enjoin or restrain any Agent or any Lender from
making any Loans or issuing any Lender Letters of Credit.
(F) No Litigation.
There shall not be pending or, to the knowledge of Borrower,
threatened, any action, charge, claim, demand, suit, proceeding, petition,
governmental investigation or arbitration by, against or affecting any Loan
Party or any of its Subsidiaries or any property of any Loan Party or any of its
Subsidiaries that has not been disclosed to Collateral Agent and Administrative
Agent by Borrower in writing, and there shall have occurred no development in
any such action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration that, in the opinion of either Collateral
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Agent or Administrative Agent, would reasonably be expected to have a Material
Adverse Effect.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce each Agent and each Lender to enter into this Agreement, to
make Loans and to issue Lender Letters of Credit, Borrower represents and
warrants to each Agent and each Lender that the following statements are and
will be true, correct and complete:
4.1. Organization, Powers, Capitalization.
(A) Organization and Powers.
Each of the Loan Parties is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and qualified to do business in all states where such
qualification is required except where failure to be so qualified could not be
reasonably expected to have a Material Adverse Effect. Each of the Loan Parties
has all requisite corporate power and authority to own and operate its
properties, to carry on its business as now conducted and proposed to be
conducted and to enter into each Loan Document.
(B) Capitalization.
The authorized capital stock of each of the Loan Parties is as set
forth on Schedule 4.1(B). All issued and outstanding shares of capital stock of
each of the Loan Parties are duly authorized and validly issued, fully paid,
nonassessable, other than those in favor of Collateral Agent for the benefit of
Agents and Lenders, and such shares were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. All
issued and outstanding shares of capital stock of each of the Loan Parties other
than Borrower and all issued and outstanding shares of capital stock of Borrower
owned by each Designated Person, are owned free and clear of all Liens, except,
in the case of the Loan Parties other than Borrower, for the Liens of Collateral
Agent for the benefit of Agents and Lenders. As of the Closing Date, the capital
stock of each of the Loan Parties other than Borrower is owned by the
stockholders and in the amounts set forth on Schedule 4.1(B). As of the Closing
Date, the amounts of capital stock of Borrower owned by each Designated Person
is set forth on Schedule 4.1(B). No shares of the capital stock of any Loan
Party other than Borrower, other than those described above, are issued and
outstanding. There are no preemptive or other outstanding rights, options,
warrants, conversion rights or similar agreements or understandings for the
purchase or acquisition from any Loan Party other than Borrower, of any shares
of capital stock or other securities of any such entity.
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4.2. Authorization of Borrowing, No Conflict.
Borrower has the corporate power and authority to incur the
Obligations and to grant security interests in the Collateral. On the Closing
Date, the execution, delivery and performance of the Loan Documents by each Loan
Party signatory thereto will have been duly authorized by all necessary
corporate and shareholder action. The execution, delivery and performance by
each Loan Party of each Loan Document to which it is a party and the
consummation of the transactions contemplated by this Agreement and the other
Loan Documents by each Loan Party do not contravene and will not be in
contravention of any applicable law, the corporate charter or bylaws of any Loan
Party or any agreement or order by which any Loan Party or any Loan Party's
property is bound. This Agreement is, and the other Loan Documents, including
the Revolving Notes and Term Notes when executed and delivered will be, the
legally valid and binding obligations of the applicable Loan Parties
respectively, each enforceable against the Loan Parties, as applicable, in
accordance with their respective terms.
4.3. Financial Condition.
All financial statements concerning Borrower and its Subsidiaries
which have been or will hereafter be furnished by Borrower and its Subsidiaries
to any Agent or any Lender pursuant to this Agreement have been or will be
prepared in accordance with GAAP consistently applied throughout the periods
involved (except as disclosed therein) and do or will present fairly the
financial condition of the corporations covered thereby as at the dates thereof
and the results of their operations for the periods then ended. The Pro Forma
was prepared by Borrower based on the unaudited consolidated balance sheet of
Borrower and its Subsidiaries as of the last day of the tenth Fiscal Period of
the 1998 Fiscal Year. The Projections delivered and to be delivered have been
and will be prepared by Borrower in light of the past operations of the business
of Borrower and its Subsidiaries, and such Projections represent and will
represent the good faith estimate of Borrower and its senior management
concerning the most probable course of its business as of the date such
Projections are prepared and delivered.
4.4. Indebtedness and Liabilities.
As of the Closing Date, neither Borrower nor any of its Subsidiaries
has (a) any Indebtedness except as reflected on the Pro Forma; or (b) any
Liabilities other than as (i) reflected on the Pro Forma, (ii) incurred in the
ordinary course of business following the date of the Pro Forma or (iii) listed
on Schedule 4.4.
4.5. Account Warranties.
Borrower represents, warrants and covenants as to each Account that,
at the time of its creation, unless otherwise disclosed to Collateral Agent in
writing at such time, the Account is a valid, bona fide account, representing an
undisputed indebtedness incurred
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by the named account debtor for goods actually sold and delivered or for
services completely rendered; there are no setoffs, offsets or counterclaims,
genuine or otherwise, against the Account; the Account does not represent a sale
to an Affiliate or a consignment, sale or return or a bill and hold transaction;
Borrower or a Transportation Subsidiary, as applicable, is the lawful owner of
the Account and has the right to assign the same to Collateral Agent, for the
benefit of Agents and Lenders; the Account is free of all security interests,
liens and encumbrances other than those in favor of Collateral Agent, on behalf
of Agents and Lenders, and the Account is due and payable in accordance with its
terms.
4.6. Names.
Schedule 4.6 sets forth all names, trade names, fictitious names and
business names under which Borrower conducts business as of the Closing Date or
has at any time during the past five years conducted business.
4.7. Locations; FEIN.
Schedule 4.7 sets forth as of the Closing Date the location of
Borrower's principal place of business, the location of Borrower's books and
records, the location of all other offices of Borrower and all Collateral
locations, and such locations are Borrower's sole locations for its business and
the Collateral. Borrower's federal employer identification number is set forth
on the signature page hereof.
4.8. Title to Properties; Liens.
Borrower or each of its Subsidiaries, as the case may be, has good,
sufficient and legal title, subject to Permitted Encumbrances, to all its
respective material properties and assets. Except for Permitted Encumbrances,
all such properties and assets are free and clear of Liens. To the best
knowledge of Borrower after due inquiry, there are no actual, threatened or
alleged defaults with respect to any leases of real property under which
Borrower or any of its Subsidiaries is lessee or lessor which would have a
Material Adverse Effect.
4.9. Litigation; Adverse Facts.
Except as disclosed on Schedule 4.9, there are no judgments
outstanding against any Loan Party or affecting any property of any Loan Party
nor is there any action, charge, claim, demand, suit, proceeding, petition,
governmental action or investigation or arbitration now pending or, to the best
knowledge of Borrower after due inquiry, threatened against or affecting any
Loan Party or any property of any Loan Party which could reasonably be expected
to result in any Material Adverse Effect.
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4.10. Payment of Taxes.
All material tax returns and reports of Borrower and each of its
Subsidiaries required to be filed by any of them have been timely filed, and all
taxes, assessments, fees and other governmental charges upon such Persons and
upon their respective properties, assets, income and franchises which are shown
on such returns as due and payable have been paid when due and payable. As of
the Closing Date, none of the United States income tax returns of Borrower or
any of its Subsidiaries are under audit. No tax liens have been filed and no
claims (except as otherwise permitted by Section 5.9) are being asserted with
respect to any such taxes. The charges, accruals and reserves on the books of
Borrower and each of its Subsidiaries in respect of any taxes or other
governmental charges are in accordance with GAAP.
4.11. Performance of Agreements.
None of the Loan Parties and none of their respective Subsidiaries is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any contractual obligation of
any such Person, which default could reasonably be expected to have a Material
Adverse Effect, and no condition exists that, with the giving of notice or the
lapse of time or both, would constitute such a default.
4.12. Employee Benefit Plans.
Borrower, each of its Subsidiaries and each ERISA Affiliate is in
compliance in all material respects with all applicable provisions of ERISA, the
IRC and all other applicable laws and the regulations and interpretations
thereof with respect to all Employee Benefit Plans. No material liability has
been incurred by Borrower, any Subsidiaries or any ERISA Affiliate which remains
unsatisfied for any funding obligation, taxes or penalties with respect to any
Employee Benefit Plan.
4.13. Intellectual Property.
Borrower and each of its Subsidiaries owns, is licensed to use or
otherwise has the right to use, all Intellectual Property used in or necessary
for the conduct of its business as currently conducted; and all Intellectual
Property consisting of patents, patent rights and applications therefor,
trademarks, registrations and applications therefor, tradenames, copyrights and
applications therefor and license rights in existence as of the Closing Date is
identified on Schedule 4.13.
4.14. Broker's Fees.
No broker's or finder's fee or commission will be payable with respect
to any of the transactions contemplated hereby.
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4.15. Environmental Compliance.
Except as set forth on Schedule 4.15:
(A) all facilities and property (including underlying groundwater)
owned or leased by Borrower or any of its Subsidiaries have been, and continue
to be, owned or leased by Borrower and its Subsidiaries in material compliance
with all Environmental Laws;
(B) there have been no past, and there are no pending or threatened:
(1) claims, complaints, notices or requests for information
received by Borrower or any of its Subsidiaries with respect to any alleged
violation of any Environmental Law; or
(2) complaints, notices or inquires to Borrower or any of its
Subsidiaries regarding potential liability under any Environmental Law;
in any case, that singly or in the aggregate, have, or may reasonably be
expected to have, a Material Adverse Effect;
(C) there have been no releases of Hazardous Materials at, on or
under any property now or previously owned or leased by Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably be
expected to have, a Material Adverse Effect;
(D) Borrower and its Subsidiaries have been issued and are in material
compliance with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary or desirable for
their businesses;
(E) no property now or previously owned or leased by Borrower or any
of its Subsidiaries is listed or proposed for listing (with respect to owned
property only) on any federal or state list of sites requiring investigation or
clean up;
(F) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or previously
owned or leased by Borrower or any of its Subsidiaries that, singly or in the
aggregate have, or may reasonably be expected to have, a Material Adverse
Effect;
(G) neither Borrower nor any Subsidiary of Borrower has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed or proposed for listing on any federal
or state list or which is the subject of federal, state or local enforcement
actions or other investigations which may lead to material claims against
Borrower or such Subsidiary thereof for any remedial work, damage to natural
resources or personal injury, including claims under any Environmental Laws;
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(H) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by Borrower or any
Subsidiary of Borrower that, singly or in the aggregate, have, or may reasonably
be expected to have, a Material Adverse Effect; and
(I) no conditions exist at, on or under any property now or
previously owned or leased by Borrower which, with the passage of time, or the
giving of notice or both, would give rise to liability under any Environmental
Law, which liability could reasonably be expected to have a Material Adverse
Effect.
4.16. Solvency.
After giving effect to the transactions contemplated by the Loan
Documents, and as of, from and after the date of this Agreement, Borrower and
each of its Subsidiaries: (a) owns and will own assets the fair salable value of
which are (i) greater than the total amount of its liabilities (including
contingent liabilities) and (ii) greater than the amount that will be required
to pay the probable liabilities of such Loan Party as they mature; (b) has
capital that is not unreasonably small in relation to its business as presently
conducted or any contemplated or undertaken transaction; and (c) does not intend
to incur and does not believe that it will incur debts beyond its ability to pay
such debts as they become due. There is no material fact known to Borrower that
has or could have a Material Adverse Effect and that has not been fully
disclosed herein or in such other documents, certificates and statements
furnished to any Agent or any Lender for use in connection with the transactions
contemplated hereby.
4.17. Disclosure
No representation or warranty of Borrower, any of its Subsidiaries or
any other Loan Party contained in this Agreement, the financial statements, the
other Loan Documents, or any other document, certificate or written statement
furnished to any Agent or any Lender by or on behalf of any such Person for use
in connection with the Loan Documents, including without limitation the
Confidential Information Memorandum, contains any untrue statement of a material
fact or omitted, omits or will omit to state a material fact necessary in order
to make the statements contained herein or therein not misleading in light of
the circumstances in which the same were made. The Projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by such Persons to be reasonable at the time
made, it being recognized by Agents and Lenders that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the projected
results. There is no material fact known to Borrower that has had or will have a
Material Adverse Effect and that has not been disclosed herein or in such other
documents, certificates and statements furnished to any Agent or any Lender for
use in connection with the transactions contemplated hereby.
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4.18. Insurance.
Borrower and each of its Subsidiaries maintains adequate insurance
policies for public liability, property damage for its business and properties,
product liability, and business interruption, no notice of cancellation has been
received with respect to such policies and Borrower and each of its Subsidiaries
is in compliance with all conditions contained in such policies.
4.19. Compliance with Laws.
Except as disclosed on Schedule 4.15 or Schedule 4.19, neither
Borrower nor any of its Subsidiaries is in violation of any law, ordinance,
rule, regulation, order or other requirement of any domestic or foreign
government or any instrumentality or agency thereof, having jurisdiction over
the conduct of its business or the ownership of its properties, except for any
such violation which could not reasonably be expected to have a Material Adverse
Effect and except for compliance with Environmental Laws (which is covered by
subsection 4.15).
4.20. Bank Accounts.
Schedule 4.20 sets forth the account numbers and locations of all bank
accounts of Borrower and its Subsidiaries.
4.21. Subsidiaries.
Borrower has no Subsidiaries other than as set forth on Schedule 4.21.
As of the Closing Date, each of Borrower's Subsidiaries other than Coast
Refrigerated Trucking Co., Inc., National Food Express, Inc., TAV Brands, Inc.
and Thorn Apple Valley Foreign Sales Corporation, conducts no material business
or other operations and has no material assets or liabilities.
4.22. Employee Matters.
Except as set forth on Schedule 4.22, (a) no Loan Party nor any of
such Loan Party's employees is subject to any collective bargaining agreement,
(b) no petition for certification or union election is pending with respect to
the employees of any Loan Party and no union or collective bargaining unit has
sought such certification or recognition with respect to the employees of any
Loan Party, (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the best knowledge of Borrower after due inquiry, threatened
between any Loan Party and its respective employees, other than employee
grievances arising in the ordinary course of business which could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, (d) the hours worked by and payments made to employees of each Loan
Party have not been in violation of the Fair Labor Standards Act or any other
applicable federal, state, local or foreign law dealing with such matters and
(e) the consummation of the transactions
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contemplated hereby will not give rise to any right of termination or right of
renegotiation on the part of any union under any collective bargaining agreement
to which any Loan Party is a party. Except as set forth on Schedule 4.22,
neither Borrower nor any of its Subsidiaries is subject to a written employment
contract.
4.23. Governmental Regulation.
None of the Loan Parties is, or after giving effect to any Loan will
be, subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act or the Investment Company Act of 1940 or to any federal or
state statute or regulation limiting its ability to incur indebtedness for
borrowed money.
Borrower may, at any time and from time to time and subject to
subsection 5.13, amend any one or more of the Schedules referred in this Section
4 and any representation or warranty contained herein which refers to any such
Schedule shall from and after the date of any such amendment refer to such
Schedule as so amended, provided, however, that in no event may the Borrower
amend any such Schedule if the existence of facts disclosed in such amendment
would constitute a Default or Event of Default.
SECTION 5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any of the Commitments
hereunder shall be in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit, unless Requisite Lenders shall
otherwise give their prior written consent, Borrower shall perform, and shall
cause each of its Subsidiaries to perform, all covenants in this Section 5
applicable to such Person.
5.1. Financial Statements and Other Reports.
Borrower will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of financial statements in
conformity with GAAP. Borrower will deliver to each of Collateral Agent and
Administrative Agent (unless specified to be delivered solely to one of such
Agents) the financial statements and other reports described below and, in the
case of the reports listed in subsections 5.1(A), (B), (C), (D), (E), (H), and
(P), together with copies sufficient for each Lender. Administrative Agent
agrees to promptly distribute such copies of such financial statements and
reports to each Lender.
(A) Fiscal Period Financials.
As soon as available and in any event within twenty-six (26) days
after the end of each Fiscal Period, Borrower will deliver (1) the consolidated
balance sheet of Borrower and its Subsidiaries as at the end of such Fiscal
Period, the related consolidated
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statements of stockholders' equity and cash flow for such Fiscal Period and for
the period from the beginning of the then current Fiscal Year to the end of such
Fiscal Period, and the related consolidated and consolidating (on a division by
division basis, separating the fresh meats division from the processing
division) statement of income for such Fiscal Period and for the period from the
beginning of the then current Fiscal Year to and of such Fiscal Period, and (2)
a schedule of the outstanding Indebtedness for borrowed money of Borrower and
its Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan.
(B) Fiscal Quarter Financials.
As soon as available and in any event within forty-five (45) days
after the end of each Fiscal Quarter of a Fiscal Year, Borrower will deliver the
consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such Fiscal Quarter and the related consolidated statements of income,
stockholders' equity and cash flow for such Fiscal Quarter and for the period
from the beginning of the then current Fiscal Year to the end of such Fiscal
Quarter and such financial statements shall have been reviewed by a firm of
independent certified public accountants selected by Borrower.
(C) Year-End Financials.
As soon as available and in any event within ninety (90) days after
the end of each Fiscal Year, Borrower will deliver: (1) the consolidated balance
sheet of Borrower and its Subsidiaries as at the end of such Fiscal Year and the
related consolidated statements of income, stockholders' equity and cash flow
for such Fiscal Year; (2) a schedule of the outstanding Indebtedness of Borrower
and its Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan; and (3) a report with
respect to the financial statements from a firm of independent certified public
accountants selected by Borrower and acceptable to Collateral Agent and
Administrative Agent, which report shall be unqualified as to going concern and
scope of audit of Borrower and its Subsidiaries and shall state that (a) such
consolidated financial statements present fairly the consolidated financial
position of Borrower and its Subsidiaries as at the dates indicated and the
results of its operations and cash flow for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years and (b) that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards.
(D) Accountants' Certification and Reports.
Together with each delivery of consolidated financial statements of
Borrower and its Subsidiaries pursuant to subsection 5.1(C), Borrower will
deliver a letter
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in the form of Exhibit I hereunder. Promptly upon receipt thereof, Borrower will
deliver copies of all significant reports submitted to Borrower by independent
public accountants in connection with each annual, interim or special audit of
the financial statements of Borrower made by such accountants, including the
comment letter submitted by such accountants to management in connection with
their annual audit.
(E) Compliance Certificate.
Together with the delivery of each set of financial statements
referenced in subsections 5.1(A), (B) and (C), Borrower will deliver a
Compliance Certificate, together with copies of the calculations and work-up
employed to determine Borrower's compliance or noncompliance with the financial
covenants set forth in Section 6.
(F) Borrowing Base Certificates, Related Materials.
On the Closing Date and on the Friday of each week thereafter,
Borrower shall deliver to Collateral Agent: (1) a Borrowing Base Certificate as
of the last day of the prior week, updated to reflect the most recent sales and
collections of Borrower and each Transportation Subsidiary, with supporting
detail for all listed Accounts and Inventory; (2) an aged trial balance of all
then existing Accounts; (3) an Inventory Report as of the last day of such
period; and (4) a detailed Inventory listing and cover summary report. All such
reports shall be in form and substance satisfactory to Collateral Agent.
(G) Reconciliation Reports, Payables.
On the Closing Date and within ten (10) Business Days after the last
day of each Fiscal Period and from time to time upon the request of Collateral
Agent, Borrower will deliver to Collateral Agent (1) a Reconciliation Report as
of the last day of such Fiscal Period; (2) a listing of all amounts owing to
suppliers of livestock or live poultry as of the last day of such period; and
(3) a listing of existing accounts payable as of the last day of such period;
each in form and substance satisfactory to Collateral Agent.
(H) Management Report.
Together with each delivery of financial statements of Borrower and
its Subsidiaries pursuant to subsections 5.1(A), (B) and (C), Borrower will
deliver a management report: (1) describing the operations and financial
condition of Borrower and its Subsidiaries for the Fiscal Period then ended and
the portion of the current Fiscal Year then elapsed (or for the Fiscal Year then
ended in the case of year-end financials); (2) setting forth in comparative form
the corresponding figures for the corresponding periods of the previous Fiscal
Year and the corresponding figures from the most recent Projections for the
current Fiscal Year delivered pursuant to subsection 5.1(P); and (3) discussing
the reasons for any significant variations. The information above shall be
presented on a consolidated basis and with respect to income statements only,
consolidating basis (on a
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division by division basis, separating the fresh meats division from the
processing division) and in reasonable detail and shall be certified by the
chief financial officer of Borrower to the effect that such information fairly
presents the results of operations and financial condition of Borrower and its
Subsidiaries as at the dates and for the periods indicated.
(I) Appraisals.
From time to time, upon the request of either Collateral Agent or
Collateral Agent at the direction of Requisite Lenders, Borrower will obtain and
deliver to Collateral Agent, at Borrower's expense, appraisal reports in form
and substance and from appraisers satisfactory to Collateral Agent, stating the
then current fair market and orderly liquidation values of all or any portion of
the Collateral; provided, however, so long as no Event of Default is continuing,
Collateral Agent shall not request an appraisal as to any particular category of
Collateral to be performed more than once every Loan Year at Borrower's expense.
(J) Government Notices.
Borrower will deliver to Administrative Agent within five (5) Business
Days after receipt by an Executive Officer copies of all notices, requests,
subpoenas, inquiries or other writings received from any governmental agency
concerning any Employee Benefit Plan; PASA; PPFPA; FSA; the violation or alleged
violation of any Environmental Laws; the storage, use or disposal of any
Hazardous Material; the violation or alleged violation of the Fair Labor
Standards Act; or Borrower's payment or non-payment of any taxes including any
tax audit; in each case at any time after the aggregate amount of all possible
claims, penalties, liabilities and amounts in controversy under all of the
foregoing exceeds $100,000 or if the foregoing relates to a matter that could
reasonably be expected to have a Material Adverse Effect.
(K) Events of Default, etc.
Within two (2) Business Days after any Executive Officer of Borrower
obtains knowledge of any of the following events or conditions, Borrower shall
deliver a certificate of Borrower's chief executive officer specifying the
nature and period of existence of such condition or event and what action
Borrower has taken, is taking and proposes to take with respect thereto: (1) any
condition or event that constitutes an Event of Default or Default; (2) any
notice of default that any Person has given to Borrower or any of its
Subsidiaries or any other action taken with respect to a claimed default; (3)
any Material Adverse Effect; or (4) any interruption of the business of Borrower
or any of its Subsidiaries for two (2) Business Days or more and that results
from action by any governmental or regulatory authority.
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(L) Trade Names.
Borrower and each of its Subsidiaries will give Collateral Agent at
least thirty (30) days advance written notice of any change of name or of any
new trade name or fictitious business name. Borrower's use of any trade name or
fictitious business name will be in compliance with all laws regarding the use
of such names.
(M) Locations.
Borrower will give Collateral Agent (1) at least thirty (30) days
advance written notice of any change in Borrower's principal place of business
or any change in the location of its books and records or the Collateral (other
than offsite warehouse facilities) or of any new location for its books and
records or the Collateral (other than offsite warehouse facilities) and (2)
contemporaneous notice of the use of any new offsite warehouse facilities.
(N) Bank Accounts.
Borrower will give Collateral Agent notice of any new bank accounts
Borrower or any of its Subsidiaries intends to establish at least five (5)
Business Days prior to their opening same.
(O) Litigation.
Within five (5) Business Days after any Executive Officer of Borrower
or its Subsidiaries obtains knowledge of (1) the institution of any action,
suit, proceeding, governmental investigation or arbitration against or affecting
any Loan Party or any property of any Loan Party not previously disclosed by
Borrower to Collateral Agent and Administrative Agent, to the extent that either
the amount in controversy exceeds $250,000 or such action, suit, proceeding,
investigation or arbitration seeks injunctive relief or (2) any material
development in any action, suit, proceeding, governmental investigation or
arbitration at any time pending against or affecting any Loan Party or any
property of any Loan Party which could reasonably be expected to have a Material
Adverse Effect, Borrower will promptly give notice thereof to Collateral Agent
and Administrative Agent, and will thereafter provide such other information as
may be reasonably available to them to enable Collateral Agent and
Administrative Agent, and their counsel to evaluate such matter.
(P) Projections.
As soon as available and in any event no later than thirty (30) days
prior to the end of each Fiscal Year of Borrower, Borrower will deliver
consolidated and consolidating (on a division by division basis, separating the
fresh meats division from the processing division) Projections of Borrower and
its Subsidiaries for the forthcoming four
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(4) Fiscal Years, year by year, and for the forthcoming Fiscal Year, Fiscal
Period by Fiscal Period.
(Q) Subordinated Debt and Other Indebtedness Notices.
Within two (2) Business Days of receipt thereof, Borrower shall
deliver copies of all notices given or received by Borrower and any of its
Subsidiaries with respect to noncompliance with any term or condition related to
any Subordinated Debt and other Indebtedness, in each case with an outstanding
principal balance in excess of $500,000 and shall promptly notify Collateral
Agent and Administrative Agent of any potential or actual event of default with
respect to any such Subordinated Debt or other Indebtedness.
(R) Intellectual Property.
Within forty-five (45) days after the end of each Fiscal Quarter,
Borrower will deliver an update as of the last day of such Fiscal Quarter of the
information set forth on Schedule 4.13 with respect to Intellectual Property.
(S) Other Information.
With reasonable promptness, Borrower will deliver such other
information and data with respect to any Loan Party, any Subsidiary of any Loan
Party or the Collateral as any Agent or any Lender may reasonably request from
time to time.
5.2. Access to Accountants and Management.
Borrower authorizes each Agent and each Lender to discuss the
financial condition and financial statements of Borrower and its Subsidiaries
with Borrower's independent public accountants upon reasonable notice to
Borrower of its intention to do so, and authorizes such accountants to respond
to all of each Agent's and each Lender's inquiries. Each Lender may with the
consent of Collateral Agent and Administrative Agent, which will not be
unreasonably denied, and each of Collateral Agent and Administrative Agent may
at any time, confer with Borrower's management directly regarding Borrower's
business, operations and financial condition.
5.3. Inspection.
Borrower shall permit each of Collateral Agent and Administrative
Agent and any authorized representatives designated by such Agent to visit and
inspect any of the properties of Borrower or any of its Subsidiaries, including
its and their financial and accounting records, and in conjunction with such
inspection, to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and business with its and their officers and independent
public accountants, at such reasonable times during normal business hours and as
often as may be reasonably requested. Borrower acknowledges that Collateral
Agent intends to make such inspections at least two (2) times in each calendar
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year. Each Lender may, at its own expense, and with the consent of the
applicable Agent, which will not be unreasonably denied, accompany such Agent on
any such visit or inspection.
5.4. Collateral Records.
Borrower shall keep full and accurate books and records relating to
the Collateral and shall mark such books and records to indicate Collateral
Agent's security interests in the Collateral, for the benefit of Agents and
Lenders.
5.5. Account Covenants; Verification.
Borrower shall, at its own expense: (a) cause all invoices evidencing
its Accounts and all copies thereof to bear a notice that such invoices are
payable to the lockboxes established in accordance with subsection 5.6 and (b)
use its best efforts to assure prompt payment of all amounts due or to become
due under its Accounts. No discounts, credits or allowances will be issued,
granted or allowed by Borrower to customers and no returns will be accepted
without Collateral Agent's prior written consent, other than (i) returns
required by applicable law to be accepted by Borrower and (ii) discounts,
credits and allowances in the ordinary course of Borrower's business and which
in the aggregate as to any Account Debtor at any time do not exceed $150,000;
provided, that until Collateral Agent notifies Borrower to the contrary,
Borrower may presume consent. Borrower will immediately notify Collateral Agent
in the event that a customer alleges any dispute or claim with respect to an
Account if the amount of such dispute or claim exceeds $150,000 or of any other
circumstances known to Borrower that may impair the validity or collectibility
of an Account. Collateral Agent shall have the right, at any time or times
hereafter, to verify the validity, amount or any other matter relating to an
Account, by mail, telephone or in person. After the occurrence of a Default or
an Event of Default, Borrower shall not, without the prior consent of Collateral
Agent, adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any customer or obligor thereof, or allow any credit or
discount thereon.
5.6. Collection of Accounts and Payments.
Borrower shall establish lockboxes and blocked accounts (collectively,
"Blocked Accounts") in Borrower's name with such banks ("Collecting Banks") as
are acceptable to Collateral Agent (subject to irrevocable instructions
acceptable to Collateral Agent as hereinafter set forth) to which all account
debtors shall directly remit all payments on Accounts and in which Borrower will
immediately deposit all payments made for Inventory or other payments
constituting proceeds of Collateral in the identical form in which such payment
was made, whether by cash or check. The Collecting Banks shall acknowledge and
agree, in a manner satisfactory to Collateral Agent, that all payments made to
the Blocked Accounts are the sole and exclusive property of Collateral Agent,
for the benefit of Agents and Lenders, and that the Collecting Banks have no
right of setoff
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against the Blocked Accounts and that all such payments received will be
promptly transferred to Agent's Account. Borrower hereby agrees that all
payments received by Collateral Agent, whether by cash, check, wire transfer or
any other instrument, made to such Blocked Accounts or otherwise received by
Collateral Agent and whether on the Accounts or as proceeds of other Collateral
or otherwise will be the sole and exclusive property of Collateral Agent, for
the benefit of Agents and Lenders. Borrower shall irrevocably instruct each
Collecting Bank to promptly transfer all payments or deposits to the Blocked
Accounts into Agent's Account. Borrower, and any of its Affiliates, employees,
agents or other Persons acting for or in concert with Borrower, shall, acting as
trustee for Collateral Agent, receive, as the sole and exclusive property of
Collateral Agent, any monies, checks, notes, drafts or any other payments
relating to and/or proceeds of Accounts or other Collateral which come into the
possession or under the control of Borrower or any of Borrower's Affiliates,
employees, agents or other Persons acting for or in concert with Borrower, and
immediately upon receipt thereof, Borrower or such Persons shall remit the same
or cause the same to be remitted, in kind, to the Blocked Accounts or to
Collateral Agent at its address set forth in subsection 10.4 below.
5.7. Endorsement.
Borrower hereby constitutes and appoints Collateral Agent and all
Persons designated by Collateral Agent for that purpose as Borrower's true and
lawful attorney-in-fact, with power to endorse Borrower's name to any of the
items of payment or proceeds described in subsection 5.6 above and all proceeds
of Collateral that come into Collateral Agent's possession or under Collateral
Agent's control. Both the appointment of Collateral Agent as Borrower's attorney
and Collateral Agent's rights and powers are coupled with an interest and are
irrevocable until payment in full and complete performance of all of the
Obligations.
5.8. Corporate Existence.
Borrower will, and will cause each of its Subsidiaries to, at all
times preserve and keep in full force and effect its corporate existence and all
rights and franchises material to its business; provided, that (i) any
Subsidiary of Borrower may at any time merge with another Subsidiary of Borrower
or with Borrower itself and (ii) on or before June 30, 1998, Borrower shall
cause its Subsidiary, TAV Products, Inc., to be dissolved and shall furnish to
Collateral Agent satisfactory evidence of such dissolution. Borrower will
promptly notify Collateral Agent and Administrative Agent of any change in its
or its Subsidiaries' ownership or corporate structure.
5.9. Payment of Taxes.
Borrower will, and will cause each of its Subsidiaries to, pay all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any
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penalty accrues thereon provided that no such tax need be paid if Borrower or
one of its Subsidiaries is contesting same in good faith by appropriate
proceedings promptly instituted and diligently conducted and if Borrower or such
Subsidiary has established appropriate reserves as shall be required in
conformity with GAAP.
5.10. Maintenance of Properties.
Borrower will maintain or cause to be maintained in good repair,
working order and condition, normal wear and tear excepted, all material
properties used in the business of Borrower and its Subsidiaries and will make
or cause to be made all appropriate repairs, renewals and replacements thereof;
provided, that Borrower or any of its Subsidiaries may, in its sole judgment,
close or cease operating in any facility of Borrower or such Subsidiary.
5.11. Compliance with Laws.
Borrower will, and will cause each of its Subsidiaries to, comply with
the requirements of all applicable laws, rules, regulations and orders of any
governmental authority as now in effect and which may be imposed in the future
in all jurisdictions in which Borrower or any of its Subsidiaries is now doing
business or may hereafter be doing business, other than those laws, rules,
regulations and orders the noncompliance with which would not be reasonably
likely to have a Material Adverse Effect.
5.12. Further Assurances.
Borrower shall, and shall cause each of its Subsidiaries to, from time
to time, execute such guaranties, financing or continuation statements,
documents, security agreements, reports and other documents or deliver to
Collateral Agent such instruments, certificates of title or other documents as
Collateral Agent at any time may reasonably request to evidence, perfect or
otherwise implement the guaranties and security for repayment of the Obligations
provided for in the Loan Documents. One or before June 30, 1998, Borrower shall
take such action as is reasonably required by Collateral Agent to perfect
Collateral Agent's Lien on Borrower's trademarks registered in Russia and
Borrower's trademarks registered in South Korea. At Collateral Agent's request,
Borrower shall cause any Subsidiaries of Borrower promptly to guaranty the
Obligations and to grant to Collateral Agent, on behalf of Agents and Lenders,
security interests in the real, personal and mixed property of such Subsidiary
to secure the Obligations.
5.13. Collateral Locations.
Borrower will keep the Collateral at the locations specified on
Schedule 4.7, as updated from time to time pursuant to subsection 5.1(M). With
respect to any new location (which in any event shall be within the continental
United States), Borrower will execute such documents and take such actions as
Collateral Agent deems necessary to
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perfect and protect the security interests of Collateral Agent, on behalf of
Agents and Lenders, in the Collateral, prior to the transfer or removal of any
Collateral to such new location.
5.14. Bailees.
If any Collateral is at any time in the possession or control of any
warehouseman, bailee, feedlot operator or any of Borrower's agents or
processors, Borrower shall, upon the request of Collateral Agent, notify such
warehouseman, bailee, feedlot operator, agent or processor of the security
interests in favor of Collateral Agent, for the benefit of Agents and Lenders,
created hereby and shall instruct such Person to hold all such Collateral for
Collateral Agent's account subject to Collateral Agent's instructions.
5.15. Mortgages; Title Insurance; Surveys.
(A) Title Insurance.
On the Closing Date (or within thirty (30) days following delivery of
any Mortgage with respect to Additional Mortgaged Property), Borrower shall
deliver or cause to be delivered to Collateral Agent ALTA lender's title
insurance policies issued by title insurers reasonably satisfactory to
Collateral Agent (the "Mortgage Policies") in form and substance and in amounts
reasonably satisfactory to Collateral Agent assuring Collateral Agent that the
Mortgages are valid and enforceable first priority mortgage liens on the
respective Mortgaged Property or Additional Mortgaged Property, free and clear
of all defects and encumbrances except Permitted Encumbrances. The Mortgage
Policies shall be in form and substance reasonably satisfactory to Collateral
Agent and shall include an endorsement insuring against the effect of future
advances under this Agreement, for mechanics' liens and for any other matter
that Collateral Agent may reasonably request, and shall provide for affirmative
insurance and such reinsurance as Collateral Agent may reasonably request. In
the case of each leasehold constituting Mortgaged Property or Additional
Mortgaged Property, Collateral Agent shall have received such estoppel letters,
consents and waivers from the landlords and non-disturbance agreements from any
holders of mortgages or deeds of trust on such real estate as may have been
requested by Collateral Agent, which letters shall be in form and substance
satisfactory to Collateral Agent.
(B) Additional Mortgaged Property.
Collateral Agent may from time to time designate real property or
leasehold interests of any Loan Party or any Subsidiary of any Loan Party after
the date hereof as "Additional Mortgaged Property", in which case Borrower shall
as promptly as possible (and in any event within sixty (60) days after such
designation) deliver to Collateral Agent a fully executed Mortgage, in form and
substance satisfactory to Collateral Agent together with title insurance
policies and surveys as required by this subsection 5.15. Borrower agrees that,
following the taking of the actions with respect to any Additional Mortgaged
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Property required by the immediately preceding sentence, Collateral Agent, on
behalf of Agents and Lenders, shall have a valid and enforceable first priority
mortgage on the respective Additional Mortgaged Property, free and clear of all
defects and encumbrances except for Permitted Encumbrances.
(C) Surveys.
On or before the Closing Date (or within thirty (30) days following
delivery of any Mortgage with respect to Additional Mortgaged Property),
Borrower shall deliver or cause to be delivered to Collateral Agent surveys,
certified by a licensed surveyor, for all real property that is the subject of
the Mortgage Policies including Additional Mortgaged Property for which a
Mortgage Policy is issued. All such surveys shall be sufficient to allow the
issuer of the mortgage policy to issue an ALTA lender's policy. Notwithstanding
the foregoing, Borrower shall have until June 1, 1998 to deliver or cause to be
delivered to Collateral Agent a survey with respect to the Mortgaged Property in
Holly Ridge, North Carolina that satisfies the above conditions.
5.16. Use of Proceeds and Margin Security.
Borrower shall use the proceeds of all Loans for proper business
purposes (as described in the recitals to this Agreement) consistent with all
applicable laws, statutes, rules and regulations. No portion of the proceeds of
any Loan shall be used by Borrower or any of its Subsidiaries for the purpose of
purchasing or carrying margin stock within the meaning of Regulation G or
Regulation U, or in any manner that might cause the borrowing or the application
of such proceeds to violate Regulation T or Regulation X or any other regulation
of the Board of Governors of the Federal Reserve System or to violate the
Securities Exchange Act of 1934, as amended.
5.17. Compliance with PASA and PPFPA.
In addition to the requirements set forth in subsection 5.11, Borrower
and each of its Subsidiaries shall at all times (a) comply with all applicable
provisions of each of PASA and PPFPA, including those pertaining to bonding and
payment requirements, (b) maintain written records relating to livestock,
livestock byproducts and live poultry in its possession for which payment has
not been made and (c) at Collateral Agent's request notify Collateral Agent of
any contract arrangements for the purchase of livestock or live poultry on
credit.
5.18. Insurance.
(A) Borrower will maintain or cause to be maintained, with financially
sound and reputable insurers, public liability and property damage insurance
with respect to its business and properties and the business and properties of
its Subsidiaries against loss or
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damage of the kinds customarily carried or maintained by corporations of
established reputation engaged in similar businesses and in amounts acceptable
to Collateral Agent.
(B) Borrower will (i) cause all insurance policies of Borrower and
its Subsidiaries to be endorsed or otherwise amended to include a lender's loss
payable endorsement, in form and substance satisfactory to Collateral Agent,
which endorsement shall provide that, from and after the Closing Date, the
insurance carrier shall pay all proceeds otherwise payable to Borrower or any of
its Subsidiaries under such policies directly to Collateral Agent; (ii) cause
all such policies to provide that none of Borrower, any Agent, any Lender or any
other party shall be a coinsurer thereunder and to contain a "Replacement Cost
Endorsement", without any deduction for depreciation, and such other provisions
as Collateral Agent may reasonably require from time to time to protect its
interests; (iii) deliver original or certified copies of all such certificates
of insurance to Collateral Agent; (iv) cause each such policy to provide that it
shall not be canceled, modified or not renewed (x) by reason of nonpayment of
premium upon not less than ten (10) days' prior written notice thereof by the
insurer to Collateral Agent (giving Collateral Agent the right to cure defaults
in the payment of premiums) or (y) for any other reason upon not less than
thirty (30) days' prior written notice thereof by the insurer to Collateral
Agent; and (v) deliver to Collateral Agent, prior to the cancellation,
modification or nonrenewal of any such policy of insurance, a copy of a renewal
or replacement policy (or other evidence of renewal of a policy previously
delivered to Collateral Agent) together with evidence satisfactory to Collateral
Agent of payment of the premium therefor.
(C) Borrower will notify Collateral Agent immediately whenever any
separate insurance concurrent in form or contributing in the event of loss with
that required to be maintained under this subsection 5.18 is taken out by
Borrower and promptly deliver to Collateral Agent a duplicate original copy of
such policy or policies.
(D) Borrower shall collaterally assign to Collateral Agent, for the
benefit of Agents and Lenders, as security for the payment of the Obligations,
all business interruption insurance of Borrower.
(E) Borrower shall apply any proceeds received from any policies of
insurance relating to any Collateral to the Obligations as set forth in
subsection 2.4(B).
(F) In connection with the covenants set forth in this subsection
5.18, it is understood and agreed that:
(1) Neither any Agent nor any Lender or other respective agents
or employees shall be liable for any loss or damage insured by the insurance
policies required to be maintained under this subsection 5.18, it being
understood that (A) Borrower and its Subsidiaries shall look solely to their
insurance companies or any other parties other than the aforesaid parties for
the recovery of such loss or damage and (B) such insurance companies shall have
no rights of subrogation against Agents or Lenders or their agents or employees.
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If, however, the insurance policies do not provide waiver of subrogation rights
against such parties, as required above, then Borrower hereby agrees, to the
extent permitted by law, to waive its, and to cause each of its Subsidiaries to
waive its, right of recovery, if any, against Agents and Lenders and their
agents and employees; and
(2) the designation of any form, type or amount of insurance coverage
by Collateral Agent under this subsection 5.18 shall in no event be deemed a
representation, warranty or advice by Collateral Agent, any other Agent or any
Lender that such insurance is adequate for the purposes of the business of
Borrower and its Subsidiaries or the protection of their properties and
Collateral Agent and Requisite Lenders shall have the right from time to time to
require Borrower and its Subsidiaries to keep other insurance in such form and
amount as Collateral Agent or Requisite Lenders may reasonably request, provided
that such insurance shall be obtainable on commercially reasonable terms.
5.19. Environmental Reports.
If an Event of Default occurs and is continuing due to a breach of
either subsection 4.15 or subsection 7.9, Borrower shall, at the request of
Requisite Lenders, provide to Agents and Lenders, within forty-five (45) days
after such request, at Borrower's expense, an environmental site assessment
report for any property that is the subject of such Event of Default, prepared
by an environmental consulting firm reasonably acceptable to Collateral Agent
and Administrative Agent and indicating the presence or absence of Hazardous
Materials and the estimated cost of any compliance or remedial action required
or recommended in connection therewith.
5.20. Compliance with FSA.
Within sixty (60) days of the Closing Date, Borrower and each of its
applicable Subsidiaries shall have provided Collateral Agent with evidence
satisfactory to Collateral Agent that Borrower or such Subsidiary has registered
as a buyer of farm products with the Secretary of State (or other applicable
office) of each state in which Borrower or such Subsidiary buys livestock,
poultry or other farm products as of the Closing Date and that maintains a
"central filing system" (as defined in the FSA) as of the Closing Date, and
Borrower or such Subsidiary shall have provided Collateral Agent with copies of
all notifications of any security interests in livestock or farm products,
received by Borrower or such Subsidiary as of such time, whether pursuant to the
FSA or otherwise. In addition to the foregoing, not more than ten (10) days
after its purchase of any livestock, poultry or other farm products produced in
a state that maintains a central filing system, if such purchase occurs after
the Closing Date, Borrower and each of its applicable Subsidiaries shall have
registered as a buyer of such livestock, poultry or other farm products with the
office of the Secretary of State or such other office of such state that
maintains such filing system. Borrower agrees to deliver to Collateral Agent
promptly after Borrower's or such Subsidiary's receipt thereof, copies of all
notifications received by Borrower or such Subsidiary, whether pursuant to the
UCC, the FSA or otherwise, and
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whether sent by a seller of livestock, poultry or other farm products, a lender
to such seller, the Secretary of State of any state or any other Person, of any
security interests in any livestock, poultry or other farm products to be
purchased hereafter. In addition, Borrower covenants that Borrower and each of
its applicable Subsidiaries will comply with all payment obligations imposed on
it with respect to such livestock, poultry or farm products and at Collateral
Agent's request, promptly provide Collateral Agent with evidence of such
compliance.
5.21. Authorized Stock.
Within sixty (60) days of the Closing Date, Borrower shall deliver to
Collateral Agent an opinion of Borrower's counsel satisfactory to Collateral
Agent to the effect that all issued and outstanding shares of capital stock of
Borrower's Subsidiaries have been duly authorized.
SECTION 6. FINANCIAL COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit, unless Borrower has received the prior written
consent of Requisite Lenders, Borrower shall comply with and shall cause each of
its Subsidiaries to comply with all covenants in this Section 6 applicable to
such Person.
6.1. Net Worth.
Borrower shall maintain (a) as of the last day of the first Fiscal
Quarter of the 1999 Fiscal Year, Net Worth of at least the sum of (i)
eighty-five percent (85%) of Net Worth as of the Closing Date plus (ii) fifty
percent (50%) of positive Net Income (if any) for the period from the Closing
Date through such date (the "Base Net Worth") and (b) as of the last day of the
second Fiscal Quarter of the 1999 Fiscal Year and the last day of each Fiscal
Quarter thereafter, Net Worth of at least the sum of (i) the Base Net Worth plus
(ii) fifty percent (50%) of positive Net Income (if any) for each complete
Fiscal Quarter after the First Fiscal Quarter of the 1999 Fiscal Quarter. The
foregoing computation shall not take into account any negative Net Income for
any Fiscal Quarter.
6.2. EBITDA.
Borrower shall maintain (a) as of the last day of the fourth (4th)
Fiscal Period of the 1999 Fiscal Year, for the period from the first day of the
eighth (8th) Fiscal Period of the 1998 Fiscal Year through such date, EBITDA of
at least $9,250,000 and (b) as of the last day of the seventh (7th) Fiscal
Period of the 1999 Fiscal Year, for the 13 consecutive Fiscal Periods ending on
such date, EBITDA of at least $20,000,000.
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6.3. Capital Expenditure Limits.
The aggregate amount of all Capital Expenditures of Borrower and its
Subsidiaries (excluding Capital Expenditures in respect of the replacement of an
asset (including a tractor or trailer) that was the subject of an Asset
Disposition permitted under this Agreement or to which Required Lenders have
consented, to the extent of the cash proceeds of such Asset Disposition) will
not exceed (a) $9,500,000 in the 1998 Fiscal Year or (b) $8,000,000 in any
Fiscal Year other than the 1998 Fiscal Year. In the event that Borrower or any
of its Subsidiaries enters into a Capital Lease or other contract with respect
to fixed assets, for purposes of calculating Capital Expenditures under this
subsection only, the amount of the Capital Lease or contract initially
capitalized on Borrower's or any Subsidiary's balance sheet prepared in
accordance with GAAP shall be considered expended in full on the date that
Borrower or any of its Subsidiaries enters into such Capital Lease or contract.
6.4. Fixed Charge Coverage.
Borrower shall not permit its Fixed Charge Coverage as of the last day
of any period set forth below, for the period indicated below, to be less than
the amount set forth below for such period.
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
Fiscal Periods 11-13 in 1998 Fiscal Year 0.50:1.0
Fiscal Periods 1-4 in 1999 Fiscal Year 1.00:1.0
Fiscal Periods 1-7 in 1999 Fiscal Year 1.00:1.0
Fiscal Periods 1-10 in 1999 Fiscal Year 1.00:1.0
13 consecutive Fiscal Periods ending 1.00:1.0
on the last day of 1999 Fiscal Year
13 consecutive Fiscal Periods ending on the 1.25:1.0
last day of each Fiscal Quarter in 2000 Fiscal Year
13 consecutive Fiscal Periods ending on the 1.50:1.0
last day of each Fiscal Quarter in 2001 Fiscal Year
</TABLE>
6.5. Availability.
Borrower shall maintain Excess Availability, as of the last day of
each week hereafter, of at least $4,000,000.
SECTION 7. NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender
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Letters of Credit, unless Borrower has received the prior written consent of
Requisite Lenders, Borrower shall not and will not permit any of its
Subsidiaries to:
7.1. Indebtedness and Liabilities.
Directly or indirectly create, incur, assume, guaranty, or otherwise
become or remain directly or indirectly liable, on a fixed or contingent basis,
with respect to any Indebtedness except: (a) the Obligations; (b) intercompany
Indebtedness, not to exceed any amounts outstanding on the Closing Date and
identified on Schedule 7.1, plus (i) unsecured loans from TAV Brands, Inc. to
Borrower from time to time in amounts not in excess of the amounts paid by
Borrower to TAV Brands, Inc. in respect of that certain License Agreement dated
April 6, 1991, as amended to date and (ii) additional unsecured intercompany
Indebtedness not to exceed $5,000,000 outstanding at any time in the aggregate,
among Borrower and its Subsidiaries; provided that such Indebtedness is
subordinated in right of payment to the Obligations; (c) Indebtedness (excluding
capital leases) not to exceed $750,000 in the aggregate at any time outstanding
secured by purchase money Liens; (d) Indebtedness under Capital Leases not to
exceed $5,000,000 outstanding at any time in the aggregate; (e) Indebtedness
existing on the Closing Date and identified on Schedule 7.1 and any amendments,
extensions or renewals thereof which do not increase the principal then
outstanding thereunder, increase the interest rate or fees thereunder or make
the covenants thereunder more restrictive; (f) Indebtedness under the Premium
Notes; (g) Indebtedness of up to $2,000,000 secured solely by shares of
preferred stock of Michigan Livestock Credit Corporation owned by Borrower,
having terms, and evidenced by agreements, satisfactory to Collateral Agent and
Administrative Agent in their reasonable judgment; and (h) Indebtedness in
respect of surety bonds or letters of credit issued to secure Borrower's
obligations under PASA or PPFPA. Except for Indebtedness described permitted in
the preceding sentence, Borrower will not, and will not permit any of its
Subsidiaries to, incur any Liabilities except for trade payables and normal
accruals in the ordinary course of business not yet due and payable or with
respect to which Borrower or any of its Subsidiaries is contesting in good faith
the amount or validity thereof by appropriate proceedings and then only to the
extent that Borrower or any of its Subsidiaries has established adequate
reserves therefor, if appropriate under GAAP.
7.2. Guaranties.
Except as described on Schedule 7.2 and except for endorsements of
instruments or items of payment for collection in the ordinary course of
business, guaranty, endorse, or otherwise in any way become or be responsible
for any obligations of any other Person, whether directly or indirectly by
agreement to purchase the indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or discharging
any indebtedness or obligation of such other Person or otherwise.
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7.3. Transfers, Liens and Related Matters.
(A) Transfers.
Sell, assign (by operation of law or otherwise) or otherwise dispose
of, or grant any option with respect to any of the Collateral or the assets of
such Person, except that Borrower and its Subsidiaries may (i) sell inventory in
the ordinary course of business; (ii) consummate Asset Dispositions consisting
of sales of tractors and trailers in connection with the acquisition of new
tractors and trailers; and (iii) make Asset Dispositions (other than sales of
tractors under clause (ii)) if all of the following conditions are met: (1) the
aggregate proceeds of assets sold or otherwise disposed of in any Fiscal Year
does not exceed $2,000,000; (2) the consideration received is at least equal to
the fair market value of such assets; (3) the sole consideration received is
cash or, if the Asset Disposition is a sale of real property, at least 50% of
the consideration received is cash; (4) if the Asset Disposition is a sale of
real property, any noncash portion of the proceeds thereof are evidenced by a
note secured by a mortgage lien on the real property being so transferred and
such note and mortgage lien have been collaterally assigned to Collateral Agent
in a manner acceptable to Collateral Agent; (5) the net proceeds of such Asset
Disposition are applied as required by subsection 2.4(B); (6) after giving
effect to the sale or other disposition of the assets included within the Asset
Disposition and the repayment of the Obligations with the proceeds thereof,
Borrower is in compliance on a pro forma basis with the covenants set forth in
Section 6 recomputed for the most recently ended calendar month for which
information is available and is in compliance with all other terms and
conditions contained in this Agreement; and (7) no Default or Event of Default
shall then exist or result from such sale or other disposition.
(B) Liens.
Except for Permitted Encumbrances, directly or indirectly create,
incur, assume or permit to exist any Lien on or with respect to any of the
Collateral or the assets of such Person or any proceeds, income or profits
therefrom.
(C) No Negative Pledges.
Enter into or assume any agreement (other than the Loan Documents)
prohibiting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired.
(D) No Restrictions on Subsidiary Distributions to Borrower.
Except as provided herein, directly or indirectly create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any such Subsidiary to: (1) pay
dividends or make any other distribution on any of such Subsidiary's capital
stock owned by Borrower or any Subsidiary of
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Borrower; (2) subject to subordination provisions, pay any indebtedness owed to
Borrower or any other Subsidiary; (3) make loans or advances to Borrower or any
other Subsidiary; or (4) transfer any of its property or assets to Borrower or
any other Subsidiary.
7.4. Investments and Loans.
Except as described in Schedule 7.4, make or permit to exist
investments in or loans to any other Person, except: (a) Cash Equivalents; (b)
loans and advances to employees for moving, entertainment, travel and other
similar expenses in the ordinary course of business in an aggregate outstanding
amount not in excess of $250,000 at any time; (c) intercompany loans permitted
by subsection 7.1(b); and (d) investments by Borrower or its Subsidiaries in the
amounts in existence on the date hereof.
7.5. Restricted Junior Payments.
Directly or indirectly declare, order, pay, make or set apart
any sum for any Restricted Junior Payment, except that: (a) Subsidiaries of
Borrower may make Restricted Junior Payments with respect to their common stock
to the extent necessary to permit Borrower to pay the Obligations, to make
Restricted Junior Payments permitted under clause (b) below and to permit
Borrower to pay expenses incurred in the ordinary course of business; and (b)
Borrower may make payments on the Subordinated Debt in accordance with the terms
of the subordination provisions contained in the Indenture (as it exists on the
date hereof) or any subordination agreement or other subordination agreement
relating thereto, as applicable.
7.6. Restriction on Fundamental Changes.
(a) Except as provided in subsection 5.8, enter into any
transaction of merger or consolidation; (b) except as provided in subsection
5.8, liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); (c) convey, sell, lease, sublease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business or assets, or the capital stock of any of its Subsidiaries,
whether now owned or hereafter acquired; or (d) acquire by purchase or otherwise
all or any substantial part of the business or assets of, or stock or other
evidence of beneficial ownership of, any Person.
7.7. Changes Relating to Subordinated Debt.
Change or amend the terms of the Subordinated Debt if the
effect of such amendment is to: (a) increase the interest rate on such
Indebtedness; (b) change the dates upon which payments of principal or interest
are due on such Indebtedness; (c) change any event of default or add any
covenant with respect to such Indebtedness; (d) change the payment provisions of
such Indebtedness; (e) change the subordination provisions thereof; or (f)
change or amend any other term if such change or amendment would materially
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increase the obligations of the obligor or confer additional material rights on
the holder of such Indebtedness in a manner adverse to Borrower, any of its
Subsidiaries, any Agent or any Lender.
7.8. Transactions with Affiliates.
Directly or indirectly, enter into or permit to exist any
transaction (including the purchase, sale or exchange of property or the
rendering of any service) with any Affiliate or with any officer, director or
employee of any Loan Party, except (a) as set forth on Schedule 7.8 and (b) for
transactions in the ordinary course of and pursuant to the reasonable
requirements of such Loan Party's business and upon fair and reasonable terms
which are fully disclosed to Agents and Lenders and which are no less favorable
to Borrower than it would obtain in a comparable arm's length transaction with
an unaffiliated Person.
7.9. Environmental Liabilities.
(a) Violate any applicable Environmental Law, if such
violation could reasonably be expected to have a Material Adverse Effect; (b)
dispose of any Hazardous Materials (except in accordance with applicable law)
into or onto or from, any real property owned, leased or operated by any Loan
Party; or (c) permit any Lien imposed pursuant to any Environmental Law to be
imposed or to remain on any real property owned, leased or operated by any Loan
Party.
7.10. Conduct of Business.
From and after the Closing Date, engage in any business other
than businesses of the type engaged in by such Loan Party on the Closing Date.
7.11. Compliance with ERISA.
Establish any new Employee Benefit Plan or amend any existing
Employee Benefit Plan if the liability or increased liability resulting from
such establishment or amendment is material. Neither Borrower nor any Subsidiary
shall fail to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with the provisions of ERISA, the IRC and
all other applicable laws and the regulations and interpretations thereof.
7.12. Tax Consolidations.
File or consent to the filing of any consolidated income tax
return with any Person other than Borrower or any of its Subsidiaries.
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7.13. Subsidiaries.
Establish, create or acquire any new Subsidiaries.
7.14. Fiscal Year.
Change its Fiscal Year.
7.15. Press Release; Public Offering Materials.
Disclose the name of any Agent or any Lender in any press
release or in any prospectus, proxy statement or other materials filed with any
governmental entity relating to a public offering of the capital stock of any
Loan Party except as may be required by law.
7.16. Bank Accounts.
Establish any new bank accounts, or amend or terminate any
Blocked Account or lockbox agreement without Collateral Agent's prior written
consent.
7.17. Certain Salaries.
Pay or permit any Subsidiary to pay, directly or indirectly,
any salary, bonus, or other cash compensation to any person who, as of the date
hereof, is (i) the chairman of Borrower's board of directors, (ii) Borrower's
president and chief executive officer, or (iii) Borrower's executive vice
president for finance and administration, if such payment or payments would
exceed, in the aggregate, 110% of the aggregate amount of salary, bonus and
other cash compensation paid to such person in the 1996 Fiscal Year.
Notwithstanding the foregoing, for each Fiscal Year after the 1998 Fiscal Year,
Borrower may compensate the persons described in this subsection 7.17 in
accordance with the bonus plan previously delivered to Collateral Agent and
Administrative Agent.
SECTION 8. DEFAULT, RIGHTS AND REMEDIES
8.1. Event of Default.
"Event of Default" shall mean the occurrence or existence of
any one or more of the following:
(A) Payment.
Failure to make payment of any of the Obligations when due and
in the case of interest, such failure shall not be cured within five (5) days of
the applicable due date; or
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(B) Default in Other Agreements.
(1) Failure of Borrower or any of its Subsidiaries to pay when
due any principal or interest on any Indebtedness (other than the Obligations)
or (2) breach or default of Borrower or any of its Subsidiaries with respect to
any Indebtedness (other than the Obligations), if such failure to pay, breach or
default entitles the holder to cause such Indebtedness having an aggregate
principal amount in excess of $500,000 to become or be declared due prior to its
stated maturity; or
(C) Breach of Certain Provisions.
Failure of Borrower to perform or comply with any term or
condition contained in subsections 5.1(A), (B), (C), (D), (E), (F), (G) and (P),
5.3, 5.5, 5.6 or 5.18 or contained in Section 6 or Section 7; or
(D) Breach of Warranty.
Any representation, warranty, certification or other statement
made by any Loan Party in any Loan Document or in any statement or certificate
at any time given by such Person in writing pursuant or in connection with any
Loan Document is false in any material respect on the date made; or
(E) Other Defaults Under Loan Documents.
Borrower or any other Loan Party defaults in the performance
of or compliance with any term contained in this Agreement or the other Loan
Documents and such default is not remedied or waived within ten (10) days after
receipt by Borrower of notice from Collateral Agent or Requisite Lenders of such
default (other than occurrences described in other provisions of this subsection
8.1 for which a different grace or cure period is specified or which constitute
immediate Events of Default); or
(F) Change in Control.
(1) Any change in Control of Borrower shall occur, or (2)
Borrower shall cease to beneficially own and control, directly or indirectly,
100% of the issued and outstanding shares of each class of capital stock of each
of Borrower's Subsidiaries.
(G) Involuntary Bankruptcy; Appointment of Receiver, etc.
(1) A court enters a decree or order for relief with respect
to Borrower or any of its Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed or other similar relief is not
granted under any applicable federal or state law; or (2) the continuance of any
of the following events for sixty (60) days unless dismissed, bonded or
discharged: (a) an involuntary case is commenced against Borrower or any of its
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Subsidiaries, under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect; or (b) a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over Borrower or any of its Subsidiaries, or over
all or a substantial part of their respective property, is entered; or (c) an
interim receiver, trustee or other custodian is appointed without the consent of
Borrower or any of its Subsidiaries, for all or a substantial part of the
property of Borrower or any such Subsidiary; or
(H) Voluntary Bankruptcy; Appointment of Receiver, etc.
(1) An order for relief is entered with respect to Borrower or
any of its Subsidiaries or Borrower or any of its Subsidiaries commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case or to the conversion of an involuntary case to a voluntary
case under any such law or consents to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of its
property; or (2) Borrower or any of its Subsidiaries makes any assignment for
the benefit of creditors; or (3) the board of directors of Borrower or any of
its Subsidiaries adopts any resolution or otherwise authorizes action to approve
any of the actions referred to in this subsection 8.1(H); or
(I) Liens.
Any lien, levy or assessment is filed or recorded with respect
to or otherwise imposed upon all or any part of the Collateral with an aggregate
value (in Collateral Agent's determination) equal to or greater than $500,000,
or any or any part of the assets of Borrower or any of its Subsidiaries with an
aggregate value (in Collateral Agent's determination) equal to or greater than
$500,000, by the United States or any department or instrumentality thereof or
by any state, county, municipality or other governmental agency (other than
Permitted Encumbrances) and such lien, levy or assessment is not stayed,
vacated, paid or discharged within ten (10) days; or
(J) Judgment and Attachments.
Any one or more money judgments, writs or warrants of
attachment, or similar process involving an amount in the aggregate at any time
in excess of $500,000 (and not adequately covered by insurance as to which the
insurance company has acknowledged coverage) is entered or filed against
Borrower or any of its Subsidiaries or any of their respective assets and
remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
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(K) Dissolution.
Any order, judgment or decree is entered against Borrower or
any of its Subsidiaries decreeing the dissolution or split up of Borrower or
that Subsidiary and such order remains undischarged or unstayed for a period in
excess of twenty (20) days; or
(L) Solvency.
Borrower ceases to be solvent (as represented by Borrower in
subsection 4.17) or admits in writing its present or prospective inability to
pay its debts as they become due; or
(M) Injunction.
Borrower or any of its Subsidiaries is enjoined, restrained or
in any way prevented by the order of any court or any administrative or
regulatory agency from conducting all or any material part of its business and
such order continues for more than thirty (30) days; or
(N) Invalidity of Loan Documents.
Any of the Loan Documents for any reason, other than a partial
or full release in accordance with the terms thereof, ceases to be in full force
and effect or is declared to be null and void, or any Loan Party denies that it
has any further liability under any Loan Documents to which it is party, or
gives notice to such effect; or
(O) Failure of Security.
Collateral Agent, on behalf of Agents and Lenders, does not
have or ceases to have a valid and perfected first priority security interest in
Collateral (subject to Permitted Encumbrances) with an aggregate value (as
determined by Collateral Agent) of more than $100,000, in each case, for any
reason other than the failure of any Agent or any Lender to take any action
within its control; or
(P) Damage, Strike, Casualty.
Any material damage to, or loss, theft or destruction of, any
Collateral, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which could
reasonably be expected to have a Material Adverse Effect; or
(Q) Licenses and Permits.
The loss, suspension or revocation of, or failure to renew,
any license or permit now held or hereafter acquired by Borrower or any of its
Subsidiaries, if such loss,
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suspension, revocation or failure to renew could reasonably be expected to have
a Material Adverse Effect; or
(R) Forfeiture.
There is filed against Borrower or any of its Subsidiaries any
civil or criminal action, suit or proceeding under any federal or state
racketeering statute (including, without limitation, the Racketeer Influenced
and Corrupt Organization Act of 1970), which action, suit or proceeding (1) is
not dismissed within one hundred twenty (120) days; and (2) could result in the
confiscation or forfeiture of any material portion of the Collateral.
8.2. Suspension of Commitments.
Upon the occurrence of any Default or Event of Default,
notwithstanding any grace period or right to cure Collateral Agent, upon demand
by Requisite Lenders shall, without notice or demand, immediately cease making
additional Loans and the Commitments shall be suspended; provided that, in the
case of a Default, if the subject condition or event is waived or cured within
any applicable grace or cure period, the Commitments shall be reinstated.
8.3. Acceleration.
Upon the occurrence of any Event of Default described in the
foregoing subsections 8.1(G) or 8.1(H), all Obligations shall automatically
become immediately due and payable, without presentment, demand, protest or
other requirements of any kind, all of which are hereby expressly waived by
Borrower, and the Commitments shall thereupon terminate. Upon the occurrence and
during the continuance of any other Event of Default, Collateral Agent shall, by
written notice to Borrower, (a) upon demand by Requisite Lenders, declare all or
any portion of the Obligations to be, and the same shall forthwith become,
immediately due and payable and the Commitments shall thereupon terminate and
(b) upon demand by Requisite Lenders, demand that Borrower immediately Cash
Collateralize the Letter of Credit Liability.
8.4. Remedies.
If any Event of Default shall have occurred and be continuing,
in addition to and not in limitation of any other rights or remedies available
to Agents and Lenders at law or in equity, Collateral Agent may, and shall upon
the request of Requisite Lenders exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the UCC (whether or not the UCC applies to the affected Collateral) and may also
(a) notify any or all obligors on the Accounts to make all payments directly to
Collateral Agent; (b) require Borrower to, and Borrower hereby agrees that it
will, at its
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expense and upon request of Collateral Agent forthwith, assemble all or part of
the Collateral as directed by Collateral Agent and make it available to
Collateral Agent at a place to be designated by Collateral Agent which is
reasonably convenient to both parties; (c) withdraw all cash in the Blocked
Accounts and apply such monies in payment of the Obligations in the manner
provided in subsection 8.7; (d) without notice or demand or legal process, enter
upon any premises of Borrower and take possession of the Collateral; and (e)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Collateral
Agent's offices or elsewhere, at such time or times, for cash, on credit or for
future delivery, and at such price or prices and upon such other terms as
Collateral Agent may deem commercially reasonable. Borrower agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days notice to
Borrower of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. At any sale
of the Collateral, if permitted by law, any Agent or any Lender may bid (which
bid may be, in whole or in part, in the form of cancellation of indebtedness)
for the purchase of the Collateral or any portion thereof for the account of
such Agent or such Lender. Collateral Agent shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Borrower
shall remain liable for any deficiency. Collateral Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Borrower
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter enacted. Collateral
Agent shall not be required to proceed against any Collateral but may proceed
against Borrower directly.
8.5. Appointment of Attorney-in-Fact.
Borrower hereby constitutes and appoints Collateral Agent as
Borrower's attorney-in-fact with full authority in the place and stead of
Borrower and in the name of Borrower, Collateral Agent or otherwise, from time
to time in Collateral Agent's discretion while an Event of Default is continuing
to take any action and to execute any instrument that Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including:
(a) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral; (b) to adjust, settle or compromise the amount or payment
of any Account, or release wholly or partly any customer or obligor thereunder
or allow any credit or discount thereon; (c) to receive, endorse, and collect
any drafts or other instruments, documents and chattel paper, in connection with
clause (a) above; (d) to file any claims or take any action or institute any
proceedings that Collateral Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of Agents
and Lenders with respect to any of the Collateral; and (e) to sign and endorse
any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, assignments, verifications and notices in connection with Accounts and
other documents
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relating to the Collateral. The appointment of Collateral Agent as Borrower's
attorney and Collateral Agent's rights and powers are coupled with an interest
and are irrevocable until payment in full and complete performance of all of the
Obligations.
8.6. Limitation on Duty with Respect to Collateral.
Beyond the safe custody thereof, neither any Agent nor any
Lender shall have any duty with respect to any Collateral in its possession or
control (or in the possession or control of any agent or bailee) or with respect
to any income thereon or the preservation of rights against prior parties or any
other rights pertaining thereto. Each Agent and each Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which such Agent and such Lender accords its own property. Neither any
Agent nor any Lender shall be liable or responsible for any loss or damage to
any of the Collateral, or for any diminution in the value thereof, by reason of
the act or omission of any warehouseman, carrier, forwarding agency, consignee
or other agent or bailee selected by such Agent or such Lender in good faith.
8.7. Application of Proceeds.
Upon the occurrence and during the continuance of an Event of
Default, (a) Borrower irrevocably waives the right to direct the application of
any and all payments at any time or times thereafter received by any Agent from
or on behalf of Borrower, and Borrower hereby irrevocably agrees that Collateral
Agent shall have the continuing exclusive right to apply and to reapply any and
all payments received at any time or times after the occurrence and during the
continuance of an Event of Default against the Obligations in such manner as
Collateral Agent may deem advisable notwithstanding any previous entry by
Collateral Agent upon any books and records and (b) the proceeds of any sale of,
or other realization upon, all or any part of the Collateral shall be applied:
first, to all fees, costs and expenses incurred by any Agent or any Lender with
respect to this Agreement, the other Loan Documents or the Collateral; second,
to all fees due and owing to Agents and Lenders; third, to accrued and unpaid
interest on the Obligations; fourth, to the principal amounts of the Obligations
outstanding; fifth, to any other indebtedness or obligations of Borrower owing
to any Agent or any Lender; and sixth, to Borrower.
8.8. License of Intellectual Property.
Borrower hereby assigns, transfers and conveys to Collateral
Agent, for the benefit Agents and Lenders, effective upon the occurrence of any
Event of Default hereunder, the non-exclusive right and license to use all
Intellectual Property owned or used by Borrower together with any goodwill
associated therewith, all to the extent necessary to enable Collateral Agent to
realize on the Collateral and any successor or assign to enjoy the benefits of
the Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of Collateral Agent and its successors,
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assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such right and license is granted free of charge, without requirement that any
monetary payment whatsoever be made to Borrower by Collateral Agent.
8.9. Waivers, Non-Exclusive Remedies.
No failure on the part of any Agent or any Lender to exercise,
and no delay in exercising and no course of dealing with respect to, any right
under this Agreement or the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise by any Agent or any Lender of
any right under this Agreement or any other Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The rights in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other remedies provided by law.
SECTION 9. AGENTS
9.1. Agents.
(A) Appointment.
Each Lender hereto and, upon obtaining an interest in any
Loan, any participant, transferee or other Eligible Assignee of any Lender
irrevocably appoints, designates and authorizes (1) Heller as Documentation
Agent and Collateral Agent, (2) Rabobank as Administrative Agent and (3) Harris
as Co-Agent, in each case to take such actions or refrain from taking such
action as such Agent on its behalf and to exercise such powers hereunder as are
delegated by the terms hereof, together with such powers as are reasonably
incidental thereto. Neither any Agent nor any of its directors, officers,
employees or agents shall be liable for any action so taken. The provisions of
this subsection 9.1 are solely for the benefit of Agents and Lenders and neither
Borrower nor any Loan Party shall have any rights as a third party beneficiary
of any of the provisions hereof. Each Agent may perform any of its duties
hereunder, or under the Loan Documents, by or through its agents or employees.
(B) Nature of Duties.
No Agent shall have any duties, obligations or
responsibilities except those expressly set forth in this Agreement or in the
Loan Documents. The duties of each Agent shall be mechanical and administrative
in nature. No Agent shall have by reason of this Agreement a fiduciary, trust or
agency relationship with or in respect of any other Agent or any Lender,
Borrower or any Loan Party. Each Agent and Lender shall make its own appraisal
of the credit worthiness of Borrower, and shall have independently taken
whatever steps it considers necessary to evaluate the financial condition and
affairs of Borrower, and no Agent shall have any duty or responsibility, either
initially or on a
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continuing basis, to provide any other Agent or any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the Closing Date or at any time or times thereafter. If any Agent seeks
the consent or approval of any Lenders to the taking or refraining from taking
any action hereunder, then such Agent shall send notice thereof to each Lender
and each other Agent. Each Agent shall promptly notify each other Agent and each
Lender any time that the applicable percentage of Lenders have instructed such
Agent to act or refrain from acting pursuant hereto.
(C) Rights, Exculpation, Etc.
Neither any Agent nor any of its officers, directors,
employees or agents shall be liable to any other Agent or any Lender for any
action taken or omitted by them hereunder or under any of the Loan Documents, or
in connection herewith or therewith, except that each Agent shall be obligated
on the terms set forth herein for performance of its express obligations
hereunder, and except that each Agent shall be liable with respect to its own
gross negligence or willful misconduct. No Agent shall be liable for any
apportionment or distribution of payments made by it in good faith and if any
such apportionment or distribution is subsequently determined to have been made
in error, the sole recourse of any other Agent or any Lender to whom payment was
due but not made, shall be to recover from other Lenders any payment in excess
of the amount to which they are determined to be entitled (and such other
Lenders hereby agree to return to such Agent or such Lender any such erroneous
payments received by them). In performing its functions and duties hereunder,
each Agent shall exercise the same care which it would in dealing with loans for
its own account, but no Agent shall be responsible to any other Agent or any
Lender for any recitals, statements, representations or warranties herein or for
the execution, effectiveness, genuineness, validity, enforceability,
collectability, or sufficiency of this Agreement or any of the Loan Documents or
the transactions contemplated thereby, or for the financial condition of any
Loan Party. No Agent shall be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any of the Loan Documents or the financial condition of any Loan
Party, or the existence or possible existence of any Default or Event of
Default. Each Agent may at any time request instructions from Lenders with
respect to any actions or approvals which by the terms of this Agreement or of
any of the Loan Documents such Agent is permitted or required to take or to
grant, and each Agent shall be entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan Documents until it shall have received such instructions from the
applicable percentage of Lenders. Without limiting the foregoing, no Agent or
Lender shall have any right of action whatsoever against any Agent as a result
of such Agent acting or refraining from acting under this Agreement or any of
the other Loan Documents in accordance with the instructions of the applicable
percentage of Lenders and notwithstanding the instructions of Lenders, no Agent
shall have obligation
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to take any action if it, in good faith, believes that such action exposes such
Agent to any liability.
(D) Reliance.
No Agent shall be under any duty to examine, inquire into, or
pass upon the validity, effectiveness or genuineness of this Agreement, any
other Loan Document, or any instrument, document or communication furnished
pursuant hereto or in connection herewith. Each Agent shall be entitled to rely
upon and assume that any written notices, statements, certificates, orders or
other documents or any telephone message or other communication (including any
writing, telex, telecopy or telegram) are genuine, valid, effective and correct
and to have been signed, sent or made by the proper Person, and with respect to
all matters pertaining to this Agreement or any of the Loan Documents and its
duties hereunder or thereunder, upon advice of counsel selected by it. Each
Agent shall be entitled to rely upon the advice of legal counsel, independent
accountants, and other experts selected by such Agent in its sole discretion.
(E) Indemnification.
Each Lender, in proportion to its Pro Rata Share, severally,
agrees to reimburse and indemnify each Agent for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
out-of-pocket costs, out-of-pocket expenses, advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against such Agent in any way relating to or arising out of this Agreement or
any of the Loan Documents or any action taken or omitted by such Agent under
this Agreement or any of the Loan Documents; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements resulting from any Agent's gross negligence or willful misconduct
as determined by a court of competent jurisdiction. The obligations of Lenders
under this subsection 9.1(E) shall survive the payment in full of the
Obligations and the termination of this Agreement.
(F) Heller, Rabobank and Harris Individually.
With respect to its Commitments and the Loans made by it, each
of Heller, Rabobank and Harris shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Lender. The terms "Lenders" or
"Requisite Lenders" or any similar terms shall, unless the context clearly
otherwise indicates, include Heller, Rabobank and Harris in its individual
capacity as a Lender or one of the Requisite Lenders. Each of Heller, Rabobank
and Harris may lend money to, and generally engage in any kind of banking, trust
or other business with any Loan Party as if it were not acting as an Agent
pursuant hereto.
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(G) Successor Agents.
(1) Resignation.
Each Agent may resign from the performance of all its functions and
duties hereunder at any time by giving at least 30 Business Days' prior written
notice to Borrower, the Lenders and the other Agents. Such resignation shall
take effect upon the acceptance by a successor Agent of appointment as provided
below.
(2) Appointment of Successor.
Upon any such notice of resignation pursuant to clause (G)(1) above,
Requisite Lenders shall, upon receipt of the prior written consent of Borrower,
Collateral Agent and Administrative Agent, which shall not unreasonably be
withheld, appoint a successor Agent; provided, that if an Event of Default is
then in existence, the consent of Borrower shall not be required. If a successor
Agent shall not have been so appointed within said 30 Business Day period, the
retiring Agent, upon notice to Borrower, Lenders and other Agents, shall then
appoint a successor Agent who shall serve as such Agent until such time as
Requisite Lenders, upon receipt of the prior written consent of Borrower,
Collateral Agent and Administrative Agent, which shall not be unreasonably
withheld, appoint a successor Agent as provided above.
(3) Successor Agent.
Upon the acceptance of any appointment as an Agent under the Loan
Documents by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents. After any retiring Agent's resignation as
an Agent under the Loan Documents, the provisions of this Section 9 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
an Agent under the Loan Documents.
(H) Collateral Matters.
(1) Release of Collateral.
Lenders hereby irrevocably authorize Collateral Agent, at its option
and in its discretion, to release any Lien granted to or held by Collateral
Agent upon any property covered by this Agreement or the Loan Documents (i) upon
termination of the Commitments and upon final and indefeasible payment in full
in cash and satisfaction of all Obligations and termination of this Agreement;
(ii) constituting property being sold or disposed of in accordance with this
Agreement if Borrower certifies to Collateral Agent that the sale or disposition
is made in compliance with the provisions of this Agreement (and Collateral
Agent may rely in good faith conclusively on any such certificate, without
further inquiry); or (iii) constituting property leased to Borrower under an
operating lease
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which has expired or been terminated in a transaction permitted under this
Agreement or is about to expire and which has not been, and is not intended by
Borrower to be, renewed or extended. In addition during any Fiscal Year (x)
Collateral Agent may release Collateral having a book value of not more than
$500,000, (y) Collateral Agent, with the consent of Requisite Lenders, may
release Collateral having a book value of more than or equal to $500,000 and
less than $1,000,000 and (z) Collateral Agent, with the consent of all Lenders,
may release all or any portion of the Collateral. Collateral Agent may also
release any applicable Corporate Guaranty in connection with a release of Lien
permitted or consented to hereinabove, if such release is being made in
connection with the sale of all or substantially all of the assets of the
applicable Corporate Guarantor. Without limiting any of the foregoing, each
Lender agrees to confirm in writing, upon request by Borrower, the authority to
release any property or Corporate Guaranty covered by this Agreement or the Loan
Documents conferred upon Collateral Agent under this subsection.
(2) Execution of Releases.
So long as no Event of Default is then continuing, upon confirmation
from the requisite percentage (as set forth in subsection 9.1(H)(1) above) of
Lenders, of Collateral Agent's authority to release any Collateral, and upon at
least 10 Business Days prior written request by Borrower, Collateral Agent
shall, and is hereby irrevocably authorized by Lenders to, execute such
documents as may be necessary to evidence the release of the Liens upon such
Collateral; provided, however, that (i) Collateral Agent shall not be required
to execute any such document on terms which, in Collateral Agent's opinion,
would expose Collateral Agent to liability or create any obligation or entail
any consequence other than the release of such Liens without recourse or
warranty, and (ii) such release shall not in any manner discharge, affect or
impair the Obligations or any Liens granted to Collateral Agent on behalf of
Agents and Lenders upon (or obligations of any Loan Party, in respect of), all
interests retained by any Loan Party, including, without limitation, the
proceeds of any sale, all of which shall continue to constitute part of the
property covered by this Agreement or the Loan Documents, and (iii) such release
is not inconsistent with the terms of this Agreement.
(3) Absence of Duty.
No Agent shall have any obligation whatsoever to any other Agent, any
Lender or any other Person to assure that the property covered by this Agreement
or the Loan Documents exists or is owned by Borrower or is cared for, protected
or insured or has been encumbered or that the Liens granted to Collateral Agent
on behalf of Agents and Lenders herein or pursuant hereto have been properly or
sufficiently or lawfully created, perfected, protected or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
any Agent in this Agreement or in any of the Loan Documents, it being understood
and agreed that in respect of the property covered by this Agreement or the Loan
Documents or any
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act, omission or event related thereto, each Agent may act in any manner it may
deem appropriate, in its discretion, given such Agent's own interest in property
covered by this Agreement or the Loan Documents as one of the Lenders and that
no Agent shall have any duty or liability whatsoever to any of the other Agents
or Lenders; provided, that each Agent shall exercise the same care which it
would in dealing with loans for its own account.
(I) Agency for Perfection.
Each Lender hereby appoints each other Lender as agent for the
purpose of perfecting Lenders' security interest in Collateral which, in
accordance with Article 9 of the Uniform Commercial Code in any applicable
jurisdiction, can be perfected only by possession. Should any Lender (other than
Collateral Agent) obtain possession of any such Collateral, such Lender shall
notify Collateral Agent thereof, and, promptly upon Collateral Agent's request
therefor, shall deliver such Collateral to Collateral Agent or in accordance
with Collateral Agent's instructions. Collateral Agent may file such proofs of
claim or documents as may be necessary or advisable in order to have the claims
of Agents and Lenders (including any claim for the reasonable compensation,
expenses, disbursements and advances of Agents and Lenders, their respective
agents, financial advisors and counsel), allowed in any judicial proceedings
relative to Borrower and/or its Subsidiaries, or any of their respective
creditors or property, and shall be entitled and empowered to collect, receive
and distribute any monies, securities or other property payable or deliverable
on any such claims. Any custodian in any judicial proceedings relative to
Borrower and/or its Subsidiaries is hereby authorized by each Lender to make
payments to Collateral Agent and, in the event that Collateral Agent shall
consent to the making of such payments directly to Lenders, to pay to Collateral
Agent any amount due for the reasonable compensation, expenses, disbursements
and advances of each Agent, its agents, financial advisors and counsel, and any
other amounts due such Agent. Nothing contained in this Agreement or the other
Loan Documents shall be deemed to authorize any Agent to authorize or consent to
or accept or adopt on behalf of any Lender any plan of reorganization,
arrangement, adjustment or composition affecting the Loans, or the rights of any
holder thereof, or to authorize any Agent to vote in respect of the claim of any
Lender in any such proceeding, except as specifically permitted herein.
(J) Exercise of Remedies.
Each Lender agrees that it will not have any right
individually to enforce or seek to enforce this Agreement or any Loan Document
or to realize upon any collateral security for the Loans, it being understood
and agreed that such rights and remedies may be exercised only by one or more
Agents as specified in this Agreement or such Loan Document.
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9.2. Notice of Default.
In the event that any Agent or any Lender shall acquire actual
knowledge, or shall have been notified, of any Event of Default, such Agent or
such Lender shall promptly notify Lenders and Agents, and the applicable Agent
shall take such action and assert such rights under this Agreement as Requisite
Lenders or all of the Lenders, required for such action hereunder, shall request
in writing, and such Agent shall not be subject to any liability by reason of
its acting pursuant to any such request. If Requisite Lenders or any or all of
the Lenders, as applicable, shall fail to request the applicable Agent to take
action or to assert rights under this Agreement in respect of any Event of
Default within ten (10) days after their receipt of the notice of any Event of
Default from any Agent, or shall request inconsistent action with respect to
such Event of Default, the applicable Agent may, but shall not be required to,
take such action and assert such rights as it deems in its discretion, except
that, if Requisite Lenders or all of the Lenders, as applicable, have instructed
such Agent not to take such action or assert such right, in no event shall such
Agent act contrary to such instructions.
9.3. Action by Agents.
Each Agent shall be entitled to use its discretion with
respect to exercising or refraining from exercising any rights which may be
vested in it by, and with respect to taking or refraining from taking any action
or actions which it may be able to take under or in respect of, this Agreement,
unless such Agent shall have been instructed by Requisite Lenders or all of the
Lenders, as applicable, to exercise or refrain from exercising such rights or to
make or refrain from taking such action. No Agent shall incur any liability
under or in respect of this Agreement with respect to anything which it may do
or refrain from doing in the reasonable exercise of its judgment or which may
seem to it to be necessary or desirable in the circumstances, except for its
gross negligence or willful misconduct. No Agent shall be liable to the other
Agents, Lenders or to any Lender in acting or refraining from acting under this
Agreement in accordance with the instructions of Requisite Lenders or all of
Lenders, as the case may be, and any action taken or failure to act pursuant to
such instructions shall be binding on all Agents and Lenders.
9.4. Amendments, Waivers and Consents.
(A) Except as otherwise provided herein, no amendment,
modification, termination or waiver of any provision of this Agreement or any
other Loan Document, or consent to any departure by any Loan Party therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Requisite Lenders or the applicable Agent, as applicable; provided, that no
amendment, modification, termination, waiver or consent shall, unless in writing
and signed by all Lenders, do any of the following: (i) increase the Commitment
of any Lender; (ii) reduce, postpone or delay the principal of, rate or amount
of interest on or fees payable with respect to any Loan or Letter of Credit;
(iii) extend the Termination Date or any scheduled due date for all or any
portion of principal or interest of
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the Loans; (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans, or the percentage of Lenders which shall
be required for Requisite Lenders; (v) amend or waive the definitions of the
terms "Requisite Lenders" or "Commitments" or amend or waive this subsection
9.4; (vi) increase the percentages contained in the definition of Borrowing
Base; or (vii) except as provided in subsection 9.1(H)(1), release any Corporate
Guaranty; provided, further, that no amendment, modification, termination,
waiver or consent affecting the rights or duties of any Agent under any Loan
Document shall in any event be effective, unless in writing and signed by such
Agent, in addition to Lenders required to take such action; and provided,
further, that no amendment, modification, termination, waiver or consent
affecting the rights or duties of Issuing Lender under any Loan Document
(including any Lender Letter of Credit) shall in any event be effective, unless
in writing and signed by Issuing Lender in addition to Lenders required to take
such action.
(B) Each amendment, modification, termination, waiver or
consent shall be effective only in the specific instance and for the specific
purpose of which it was given. No amendment, modification, termination or waiver
shall be required for Collateral Agent to take additional Collateral pursuant to
any Loan Documents.
(C) Each Lender grants each of Administrative Agent and
Collateral Agent the right to purchase all, but not less than all, of such
Lender's Commitment, in the event either such Agent requests the consent of a
Lender and such consent is denied. Administrative Agent or Collateral Agent, as
applicable, may, in such circumstances, at its option, require such Lender to
assign its interest in the Loans to it for a price equal to the then outstanding
principal amount thereof plus accrued and unpaid interest, fees and other
amounts due such Lender under this Agreement, which interest, fees and other
amounts will be paid when collected from Borrower.
Collateral Agent, Administrative Agent and Borrower, without
the consent of Requisite Lenders or all Lenders, may execute amendments to this
Agreement and the Loan Documents which consist solely of the making of technical
corrections.
9.5. Assignments and Participations in Loans.
(A) Each Lender may assign its rights and delegate its
obligations under this Agreement to an Eligible Assignee; provided, that (a)
such Lender shall first obtain the written consent of each of Collateral Agent
and Administrative Agent, which shall not be unreasonably withheld, (b) if such
assignment takes place at a time when no Event of Default or Default is in
existence, such Lender shall first obtain the written consent of Borrower, which
shall not be unreasonably withheld; provided, that if Borrower fails to respond
within five (5) Business Days to a request for consent, such consent shall be
deemed to have been given, (c) the amount of Commitments and Loans of the
assigning Lender being assigned shall in no event be less than the lesser of (i)
$5,000,000 or (ii) the entire amount of the Commitments and Loans of such
assigning Lender and (d) (i) each such assignment shall be
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of a pro rata portion of all such assigning Lender's Loans and Commitments
hereunder, and (ii) the parties to such assignment shall execute and deliver to
Collateral Agent and Administrative Agent for acceptance and recording a
Assignment and Assumption Agreement together with (x) a processing and recording
fee of $3,500 payable to Collateral Agent (which shall be shared one-half each
by Administrative Agent and Collateral Agent); provided, that such fee shall not
be applicable to any interest in the Commitments and Loans purchased on or
within 90 days after the Closing Date, (y) each of the Notes originally
delivered to the assigning Lender and (z) an Administrative Questionnaire
completed in respect of such Eligible Assignee. Upon receipt of all of the
foregoing, Administrative Agent shall notify Borrower of such assignment and
Borrower shall comply with its obligations under the last sentence of subsection
2.1(E). To the extent of an assignment authorized under this subsection 9.5, the
assignee shall be considered to be a "Lender" hereunder and Borrower hereby
acknowledges and agrees that any assignment will give rise to a direct
obligation of Borrower to the assignee. The assigning Lender shall be relieved
of its obligations hereunder with respect to the assigned portion of its
Commitment. Notwithstanding any other provision in this Agreement, any Lender
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the Federal Reserve Board or U.S.
Treasury Regulations 31 CFR Section 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted such
applicable law.
(B) Each Lender may sell participations in all or any part of
any Loans made by it to another Person; provided, that any such participation
shall be in a minimum amount of $5,000,000, and provided, further, that all
amounts payable by Borrower hereunder shall be determined as if that Lender had
not sold such participation and the holder of any such participation shall not
be entitled to require such Lender to take or omit to take any action hereunder
except action directly effecting (a) any reduction in the principal amount,
interest rate with respect to any Loan in which such holder participates; (b)
any extension of the Termination Date or the date fixed for any payment of
interest payable with respect to any Loan in which such holder participates; and
(c) any release of substantially all of the Collateral. Borrower hereby
acknowledges and agrees that the participant under each participation shall for
purposes of subsections 2.8, 2.9, 2.10, 9.6 and 10.2 be considered to be a
"Lender".
(C) Except as otherwise provided in subsection 9.5(A) no
Lender shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans or
other Obligations owed to such Lender. Each Lender may furnish any information
concerning Borrower and its Subsidiaries in the possession of that Lender from
time to time to Eligible Assignees and participants (including prospective
assignees and participants) provided that the Persons obtaining such information
agrees to maintain the confidentiality of such information to the extent
required by subsection 10.18.
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(D) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement or the other Loan Documents in favor
of any Federal Reserve Bank in accordance with Regulation A of the Board of
Governors of the Federal Reserve System.
9.6. Set Off and Sharing of Payments.
In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, each Lender is
hereby authorized by Borrower at any time or from time to time, with reasonably
prompt subsequent notice to Borrower or to any other Person (any prior or
contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (a) balances held by such Lender at any of
its offices for the account of Borrower or any of its Subsidiaries (regardless
of whether such balances are then due to Borrower or its Subsidiaries), and (b)
other property at any time held or owing by such Lender to or for the credit or
for the account of Borrower or any of its Subsidiaries, against and on account
of any of the Obligations which are not paid when due; except that no Lender
shall exercise any such right without the prior written consent of Collateral
Agent. Any Lender which has exercised its right to set off shall purchase for
cash (and the other Lenders shall sell) participations in each such other
Lender's Pro Rata Share of the Obligations as would be necessary to cause such
Lender to share such excess with each other Lender in accordance with their
respective Pro Rata Shares. Borrower agrees, to the fullest extent permitted by
law, that (a) any Lender may exercise its right to set off with respect to
amounts in excess of its Pro Rata Share of the Obligations and may sell
participations in such excess to other Lenders, and (b) any Lender so purchasing
a participation in the Loans made or other Obligations held by other Lenders may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans and other Obligations in the amount of such participation.
9.7. Disbursement of Funds.
Collateral Agent may, on behalf of Lenders, disburse funds to
Borrower for Loans requested. Each Lender shall reimburse Collateral Agent on
demand for all funds disbursed on its behalf by Collateral Agent, or if
Collateral Agent so requests, each Lender will remit to Collateral Agent its Pro
Rata Share of any Loan or Revolving Advance before Collateral Agent disburses
same to Borrower. If Collateral Agent elects to require that funds be made
available prior to disbursement to Borrower, the parties shall follow the
procedures set forth in subsection 2.1(D)(1).
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9.8. Settlements, Payments and Information.
(A) Revolving Advances and Payments; Fee Payments.
(1) Payments of principal, interest and fees in respect
of the Term Loan will be settled on the Business Day received in accordance with
the provisions of Section 2. The Revolving Loan may fluctuate from day to day
through Collateral Agent's disbursement of funds to, and receipt of funds from,
Borrower. In order to minimize the frequency of transfers of funds between
Collateral Agent and each Lender notwithstanding terms to the contrary set forth
in Section 2 and subsection 9.7, Revolving Advances and repayments may be
settled according to the procedures described in this subsection 9.8.
Notwithstanding these procedures, each Lender's obligation to fund its Pro Rata
Share of Revolving Advances made by Collateral Agent to Borrower will commence
on the date such Revolving Advances are made by Collateral Agent. Such payments
will/ be made by such Lender without set-off, counterclaim or reduction of any
kind.
(2) Once each week for the Revolving Loan or more
frequently (including daily), if Collateral Agent so elects (each such day being
a "Settlement Date"), Collateral Agent will advise each Lender by 1:00 p.m.
Central time by telephone, telex, or telecopy of the amount of each such
Lender's Pro Rata Share of the Revolving Loan. In the event payments are
necessary to adjust the amount of such Lender's share of the Revolving Loan to
such Lender's Pro Rata Share of the Revolving Loan, the party from which such
payment is due will pay the other, in same day funds, by wire transfer to the
other's account not later than 3:00 p.m. Central time on the Business Day
following the Settlement Date.
(3) On the first Business Day of each calendar month
(each such day being an "Interest Settlement Date"), Collateral Agent will
advise each Lender by telephone, telefax or telecopy of the amount of interest
and fees charged to and collected from Borrower for the preceding calendar
month. Provided that such Lender has made all payments required to be made by it
under this Agreement, Collateral Agent will pay to such Lender, by wire transfer
to such Lender's account (as specified by such Lender on the signature page of
this Agreement as amended by such Lender from time to time after the date hereof
or in the applicable Assignment and Assumption Agreement) not later than 3:00
p.m. Central time on the next Business Day following the Interest Settlement
Date such Lender's share of such interest and fees actually collected by
Collateral Agent.
(B) Return of Payments.
(1) If Collateral Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has been or
will be received by Collateral Agent from Borrower and such related payment is
not received by Collateral Agent, then Collateral Agent will be entitled to
recover such amount from such Lender without set-off, counterclaim or deduction
of any kind.
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(2) If Collateral Agent determines at any time
that any amount received by Collateral Agent under this Agreement must be
returned to Borrower or paid to any other person pursuant to any solvency law or
otherwise, then, notwithstanding any other term or condition of this Agreement,
Collateral Agent will not be required to distribute any portion thereof to any
Lender. In addition, each Lender will repay to Collateral Agent on demand any
portion of such amount that Collateral Agent has distributed to such Lender,
together with interest at such rate, if any, as Collateral Agent is required to
pay to Borrower or such other Person, without set-off, counterclaim or deduction
of any kind.
9.9. Dissemination of Information.
Each of Collateral Agent and Administrative Agent will provide
Lenders with any information received by such Agent from Borrower which is
required to be provided to a Lender hereunder; provided, however, that neither
such Agent shall be liable to Lenders for any failure to do so, except to the
extent that such failure is attributable to such Agent's gross negligence or
willful misconduct.
9.10. Discretionary Advances.
(A) Provided that no Event of Default exists, Collateral Agent
may, in its sole discretion, and shall, at the direction of Requisite Lenders,
make Revolving Advances of up to $2,000,000 in excess of the limitations set
forth in the Borrowing Base, but not in excess of the Total Loan Commitment, up
to two times in any 12 month period and in each case for a period of not more
than 60 consecutive days, (B) during the continuance of an Event of Default,
Collateral Agent may in its sole discretion, make Revolving Advances of up to
$1,000,000 in excess of the limitations set forth in the Borrowing Base for the
purpose of preserving or protecting the Collateral or for incurring any costs
associated with collection or enforcing rights or remedies against the
Collateral, or incurred in any action to enforce this Agreement or any other
Loan Document and (C) during the continuance of an Event of Default, Collateral
Agent shall, at the direction of Requisite Lenders, make Revolving Advances in
an aggregate amount of not more than $2,000,000 in excess of the limitations set
forth in the Borrowing Base for the purpose of preserving or protecting the
Collateral or for incurring any costs associated with collection or enforcing
rights or remedies against the Collateral, or incurred in any action to enforce
this Agreement or any other Loan Document.
9.11. Documentation Agent and Co-Agent.
The duties of Documentation Agent shall be limited to (a)
coordinating documentation of the Loans prior to the Closing Date and (b)
coordinating documentation of each amendment, waiver, modification or other
change in the terms of the Loans and the Loan Documents after the Closing Date.
The duties of Co-Agent shall be limited to assisting the other Agents in the
process of closing the Loans.
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SECTION 10. MISCELLANEOUS
10.1. Expenses and Attorneys' Fees.
Whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to promptly pay all fees, costs and expenses
incurred by each of Collateral Agent, Documentation Agent, Administrative Agent
and Issuing Lender (and, with respect to subsection 10.1(f) only, each Lender,
each Agent and Issuing Lender) in connection with any matters contemplated by or
arising out of this Agreement or the other Loan Documents including the
following, and all such fees, costs and expenses shall be part of the
Obligations, payable on demand and secured by the Collateral: (a) fees, costs
and expenses (including reasonable attorneys' fees, allocated costs of internal
counsel and fees of environmental consultants, accountants and other
professionals retained by each of Collateral Agent, Documentation Agent,
Administrative Agent and Issuing Lender) incurred in connection with the
examination, review, due diligence investigation, documentation and closing of
the financing arrangements evidenced by the Loan Documents; (b) fees, costs and
expenses (including reasonable attorneys' fees, allocated costs of internal
counsel and fees of environmental consultants, accountants and other
professionals retained by each of Collateral Agent, Documentation Agent,
Administrative Agent and Issuing Lender) incurred in connection with the review,
negotiation, preparation, documentation, execution, syndication, and
administration of the Loan Documents, the Loans, and any amendments, waivers,
consents, forbearances and other modifications relating thereto or any
subordination or intercreditor agreements; (c) fees, costs and expenses incurred
by Collateral Agent in creating, perfecting and maintaining perfection of Liens
in favor of Collateral Agent, on behalf of Agents and Lenders; (d) fees, costs
and expenses incurred by each of Collateral Agent, Documentation Agent and
Administrative Agent in connection with forwarding to Borrower the proceeds of
Loans including any Agent's or any Lenders' standard wire transfer fee; (e)
fees, costs, expenses and bank charges, including bank charges for returned
checks, incurred by any Agent or any Lender in establishing, maintaining and
handling lock box accounts, blocked accounts or other accounts for collection of
the Collateral; (f) fees, costs, expenses (including reasonable attorneys' fees
and allocated costs of internal counsel) of any Agent, Issuing Lender or any
Lender and costs of settlement incurred in collecting upon or enforcing rights
against the Collateral or incurred in any action to enforce this Agreement or
the other Loan Documents or to collect any payments due from Borrower or any
other Loan Party under this Agreement or any other Loan Document or incurred in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement, whether in the nature of a "workout" or in
connection with any insolvency or bankruptcy proceedings or otherwise.
10.2. Indemnity.
In addition to the payment of expenses pursuant to subsection
10.1, whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to
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indemnify, pay and hold each Agent, Issuing Lender and each Lender and the
officers, directors, employees, agents, consultants, auditors, persons engaged
by any Agent, Issuing Lender or any Lender to evaluate or monitor the
Collateral, affiliates and attorneys of each Agent, Issuing Lender, each Lender
and such holders (collectively called the "Indemnitees") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including the fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto) that may be imposed on, incurred by, or asserted
against that Indemnitee, in any manner relating to or arising out of this
Agreement or the other Loan Documents, the consummation of the transactions
contemplated by this Agreement, the statements contained in the commitment
letters, if any, delivered by any Agent or any Lender, each Agent's and each
Lender's agreement to make the Loans hereunder, the use or intended use of the
proceeds of any of the Loans or the exercise of any right or remedy hereunder or
under the other Loan Documents (the "Indemnified Liabilities"); provided that
Borrower shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of that Indemnitee as determined by a court of competent jurisdiction.
10.3. Notices.
Unless otherwise specifically provided herein, all notices
shall be in writing addressed to the respective party as set forth below and may
be personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. Central time or, if not, on the
next succeeding Business Day; (c) if delivered by overnight courier, the next
Business Day after delivery to such courier properly addressed; or (d) if by
U.S. Mail, four (4) Business Days after depositing in the United States mail,
with postage prepaid and properly addressed.
If to Borrower: Thorn Apple Valley, Inc.
26999 Central Park Boulevard
Suite 300
Southfield, Michigan 48076
Telecopy No.: (810) 213-1101
With a copy to: Honigman, Miller, Schwartz and
Cohn
2290 First National Building
Detroit, Michigan 48226
Telecopy No.: (313) 256-4215
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<PAGE> 105
If to Documentation HELLER FINANCIAL, INC.
Agent, Collateral Agent 500 West Monroe
or Heller: Chicago, Illinois, 60661
Attn: HBC Portfolio Manager
Telecopy No.: (312) 441-6158
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe
Chicago, Illinois 60661
Attn: Legal Department/HBC
Telecopy No.: (312) 441-6876
If to Administrative Rabobank Nederland,
Agent or Rabobank: New York Branch
245 Park Avenue
New York, New York 10167
Attn: Corporate Services
Department
Telecopy: (212) 818-0233
With a copy to: Rabobank Nederland,
New York Branch
300 South Wacker Drive
Suite 3500
Chicago, Illinois 60606
Attn: Michael Butz
Telecopy: (312) 408-8240
If to Co-Agent or any Lender: Its address indicated on the
signature page hereto, in an Assignment and Assumption Agreement or in a notice
to Collateral Agent and Administrative Agent and Borrower or to such other
address as the party addressed shall have previously designated by written
notice to the serving party, given in accordance with this subsection 10.3.
10.4. Survival of Warranties and Certain Agreements.
All agreements, representations and warranties made herein
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder. Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of Borrower set forth in subsections 10.1, 10.2,
10.6, 10.11, 10.14 and 10.15 shall survive the payment of the Loans and the
termination of this Agreement.
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<PAGE> 106
10.5. Indulgence Not Waiver.
No failure or delay on the part of any Agent or any Lender in
the exercise of any power, right or privilege hereunder or under any Term Note
or any Revolving Note shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
10.6. Marshaling; Payments Set Aside.
Neither any Agent nor any Lender shall be under any obligation
to marshal any assets in favor of any Loan Party or any other party or against
or in payment of any or all of the Obligations. To the extent that any Loan
Party makes a payment or payments to any Agent and/or any Lender or any Agent
and/or any Lender enforces its security interests or exercise its rights of
setoff, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
10.7. Entire Agreement.
This Agreement, the Term Notes, the Revolving Notes, and the
other Loan Documents referred to herein embody the final, entire agreement among
the parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. There are no oral agreements among the parties hereto.
10.8. Severability.
The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement or the other
Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
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<PAGE> 107
10.9. Lenders' Obligations Several; Independent Nature of
Lenders' Rights.
The obligation of each Lender hereunder is several and not
joint and neither any Agent nor any Lender shall be responsible for the
obligation or commitment of any other Lender hereunder. In the event that any
Lender at any time should fail to make a Loan as herein provided, the Lenders,
or any of them, at their sole option, may make the Loan that was to have been
made by the Lender so failing to make such Loan. Nothing contained in any Loan
Document and no action taken by any Agent or any Lender pursuant hereto or
thereto shall be deemed to constitute Lenders to be a partnership, an
association, a joint venture or any other kind of entity. The amounts payable at
any time hereunder to each Lender shall be a separate and independent debt, and,
provided the applicable Agent fails or refuses to exercise any remedies against
Borrower after receiving the direction of Requisite Lenders, as applicable, each
Lender shall be entitled to protect and enforce its rights arising out of this
Agreement and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose.
10.10. Headings.
Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.11. APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.12. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns except that
Borrower may not assign its rights or obligations hereunder without the written
consent of each Agent and each Lender.
10.13. No Fiduciary Relationship; Limitation of Liabilities.
(A) No provision in this Agreement or in any of the other
Loan Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty by any Agent or any Lender to Borrower.
(B) All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by any Agent or any Lender shall
have the right to act exclusively in the interest of such Agent or such Lender
and shall have no duty of disclosure, duty of
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<PAGE> 108
loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to Borrower or any of Borrower's shareholders or any other Person.
(C) Neither any Agent nor any Lender, nor any affiliate,
officer, director, shareholder, employee, attorney, or agent of any Agent or any
Lender shall have any liability with respect to, and Borrower hereby waives,
releases, and agrees not to sue any of them upon, any claim for any special,
indirect, incidental, or consequential damages suffered or incurred by Borrower
in connection with, arising out of, or in any way related to, this Agreement or
any of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents. Borrower hereby waives, releases,
and agrees not to sue any Agent or any Lender or any of any Agent's or any
Lender's affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of, or
in any way related to, this Agreement or any of the other Loan Documents, or any
of the transactions contemplated by this Agreement or any of the transactions
contemplated hereby.
10.14. CONSENT TO JURISDICTION.
BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK STATE OF ILLINOIS AND
IRREVOCABLY AGREES THAT, SUBJECT TO COLLATERAL AGENT'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TERM NOTES, THE
REVOLVING NOTES, OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE TERM
NOTES, THE REVOLVING NOTES, THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS.
10.15. WAIVER OF JURY TRIAL.
BORROWER, EACH AGENT AND EACH LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, THE TERM NOTES, THE REVOLVING NOTES OR THE OTHER
LOAN DOCUMENTS. BORROWER, EACH AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, THE TERM
NOTES, THE REVOLVING NOTES AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
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<PAGE> 109
BORROWER, EACH AGENT AND EACH LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
10.16. Construction.
Borrower, each Agent and each Lender each acknowledge that it
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its legal
counsel and that this Agreement and the other Loan Documents shall be construed
as if jointly drafted by Borrower, each Agent and each Lender.
10.17. Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents, or
supplements may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all of which counterparts together
shall constitute but one and the same instrument. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto. Delivery of an executed counterpart of a signature page to this
Agreement, any amendments, waivers, consents or supplements, or to any other
Loan Document by telecopier shall be as effective as delivery of a manually
executed counterpart thereof.
10.18. Confidentiality.
Agents and Lenders shall hold all nonpublic information
obtained pursuant to the requirements hereof and identified as such by Borrower
in accordance with such Person's customary procedures for handling confidential
information of this nature and in accordance with safe and sound business
practices and in any event may make disclosure to such of its respective
Affiliates, officers, directors, employees, agents and representatives as need
to know such information in connection with the Loans. If any Lender is
otherwise a creditor of a Borrower, such Lender may use the information in
connection with its other credits. Agents and Lenders may also make disclosure
reasonably required by a bona fide offeree or assignee (or participation), or as
required or requested by any governmental authority or representative thereof,
or pursuant to legal process, or to its accountants, lawyers and other advisors,
and shall require any such offeree or assignee (or participant) to agree (and
require any of its offerees, assignees or participants to agree) to comply with
this Section 10.21. In no event shall any Agent or any Lender be obligated or
required to return any materials furnished by Borrower; provided, however, each
Offeree shall be required to agree that if it does not become a assignee (or
participant) it shall return all materials furnished to it by Borrower in
connection herewith.
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<PAGE> 110
10.19. Illinois Collateral Protection Act.
Unless Borrower provides Collateral Agent with evidence of the
insurance coverage required by this Agreement, Collateral Agent may purchase
insurance at Borrower's expense to protect Collateral Agent's and the Lenders'
interests in Collateral. This insurance may, but need not, protect Borrower's
interests. The coverage that Collateral Agent purchases may not pay any claim
that Borrower may make or any claim that is made against Borrower in connection
with the Collateral. Borrower may later cancel any insurance purchased by
Collateral Agent, but only after providing Collateral Agent with evidence that
Borrower has obtained insurance as required by this Agreement. If Collateral
Agent purchases insurance for the Collateral, Borrower will be responsible for
the costs of that insurance, including interest and any other charges Borrower
may impose in connection with the placement of the insurance, until the
effective date of the cancellation or expiration of the insurance. This costs of
the insurance may be added to the Loans. The costs of the insurance may be more
than the cost of insurance Borrower may be able to obtain on its own.
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<PAGE> 111
Witness the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
THORN APPLE VALLEY, INC.
By: /s/Louis Glazier
-------------------------------------------
Title: Executive Vice President
-------------------------------------------
FEIN: 38-1964066
-------------------------------------------
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK
BRANCH, as Administrative Agent
By: /s/ M. Christina Debler
-------------------------------------------
Title: Vice President
-------------------------------------------
By: /s/ W. Pieter C. Kodde
-------------------------------------------
Title:
-------------------------------------------
HELLER FINANCIAL, INC.,
as Collateral Agent
By:/s/ Ronald E. Little
-------------------------------------------
Title: Vice President
-------------------------------------------
HELLER FINANCIAL, INC.,
as Documentation Agent
By: /s/ Ronald E. Little
-------------------------------------------
Title: Vice President
-------------------------------------------
106
<PAGE> 112
HARRIS TRUST AND SAVINGS BANK,
as Co-Agent
By:/s/ Carl Blackham
------------------------------
Title: Vice President
------------------------------
107
<PAGE> 113
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK
BRANCH, as a Lender
By: /s/ M. Christina Debler
------------------------------
Title: Vice President
------------------------------
By: /s/ W. Pieter C. Kodde
------------------------------
Title:
------------------------------
Revolving Loan Commitment: $16,764,750
Term Loan Commitment: $13,235,250
Total Commitments: $30,000,000
108
<PAGE> 114
HELLER FINANCIAL, INC.,
as a Lender
By:/s/ Ronald E. Little
------------------------------
Title: Vice President
------------------------------
Revolving Loan Commitment: $18,860,250
Term Loan Commitment: $14,889,750
Total Commitments: $33,750,000
109
<PAGE> 115
COMERICA BANK, N.A.,
as a Lender
By: /s/ Steven E. Dicker
------------------------------
Title: Vice President
------------------------------
Revolving Loan Commitment: $11,176,250
Term Loan Commitment: $ 8,823,750
Total Commitments: $20,000,000
110
<PAGE> 116
SANWA BUSINESS
CREDIT CORPORATION,
as a Lender
By: /s/ Stanley Kaminski
------------------------------
Title: Vice President
------------------------------
Revolving Loan Commitment: $13,970,500
Term Loan Commitment: $11,029,500
Total Commitments: $25,000,000
111
<PAGE> 117
HARRIS TRUST AND SAVINGS BANK,
as a Lender
By: /s/ Carl Blackham
------------------------------
Title: Vice President
------------------------------
Revolving Loan Commitment $18,860,250
Term Loan Commitment: $14,889,750
Total Commitments $33,750,000
112
<PAGE> 118
NATIONAL CITY BANK, as a Lender
By: /s/ Marybeth S. Howe
------------------------------
Title: Vice President
------------------------------
Revolving Loan Commitment: $ 5,588,500
Term Loan Commitment: $ 4,411,500
Total Commitments: $ 10,000,000
113
<PAGE> 119
OLD KENT BANK & TRUST COMPANY,
as a Lender
By: /s/ Judy E. Rinkus
------------------------------
Title: Vice President
------------------------------
Revolving Loan Commitment: $ 4,191,000
Term Loan Commitment: $ 3,309,000
Total Commitments: $ 7,500,000
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<PAGE> 120
TRANSAMERICA BUSINESS CREDIT
CORPORATION, as a Lender
By: /s/ Michael J. Burns
------------------------------
Title: Senior Vice President
------------------------------
Revolving Loan Commitment: $ 5,588,500
Term Loan Commitment: $ 4,411,500
Total Commitments: $ 10,000,000
115
<PAGE> 121
EXHIBITS
Exhibit A - Form of Administrative Questionnaire
Exhibit B - Form of Assignment and Assumption Agreement
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Borrowing Request
Exhibit E - Form of Compliance Certificate
Exhibit F - Form of Continuation/Conversion Notice
Exhibit G - Intentionally Omitted
Exhibit H - Form of Reconciliation Report
Exhibit I - Form of Accountants' Letter
<PAGE> 122
SCHEDULES
Schedule 1.1(A) Mortgaged Property
Schedule 1.1(B) Other Liens
Schedule 1.1(C) Pro Forma
Schedule 2.1(G) Existing Letters of Credit
Schedule 3.1(A) List of Closing Documents
Schedule 4.1(B) Capitalization of Loan Parties
Schedule 4.4 Liabilities
Schedule 4.6 Trade Names
Schedule 4.7 Locations of Principal Place of Business, Books and Records
and Collateral
Schedule 4.9 Litigation
Schedule 4.13 Intellectual Property
Schedule 4.15 Environmental Matters
Schedule 4.19 Noncompliance
Schedule 4.20 Bank Accounts
Schedule 4.21 Subsidiaries
Schedule 4.22 Employee Matters
Schedule 7.1 Indebtedness
Schedule 7.2 Guaranties
Schedule 7.4 Investments
Schedule 7.8 Transactions with Affiliates
<PAGE> 1
EXHIBIT 10(r)
WAIVER AND AMENDMENT NO. 1
TO LOAN AND SECURITY AGREEMENT
This Waiver and Amendment No. 1 to Loan and Security Agreement (this
"Amendment") is dated as of the 10th day of September, 1998 and is by and among
Heller Financial, Inc., as a Lender and as Collateral Agent (the "Collateral
Agent") and Documentation Agent (the "Documentation Agent") for the Lenders,
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as a Lender and as Administrative Agent (the "Administrative
Agent") for the Lenders, Harris Trust and Savings Bank, as a Lender and as
Co-Agent (the "Co-Agent") for the Lenders, the other Lenders party thereto and
Thorn Apple Valley, Inc., as Borrower ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower, Collateral Agent, Documentation Agent,
Administrative Agent, Co-Agent and the Lenders signatory thereto from time to
time are parties to that certain Loan and Security Agreement dated as of
April 16, 1998 (as amended or otherwise modified from time to time, the "Loan
Agreement"; capitalized terms used and not defined herein shall have the
meanings ascribed to such terms in the Loan Agreement), pursuant to which Agents
and Lenders agreed to provide certain loans and other financial accommodations
to Borrower;
WHEREAS, Borrower has advised Agents and Lenders that Borrower is (i)
in breach of subsection 6.4 (Fixed Charge Coverage) of the Loan Agreement for
failure to maintain the required minimum Fixed Charge Coverage as of the last
Fiscal Period of the 1998 Fiscal Year and (ii) in breach of subsection 6.5
(Availability) of the Loan Agreement for failure to maintain the required Excess
Availability as of the last day of each week prior to the date hereof;
WHEREAS, such breaches constitute Events of Default under
subsection 8.1(C) of the Loan Agreement (collectively, the "Existing Event of
Default");
WHEREAS, the Existing Events of Default remain in existence as of the
date hereof;
WHEREAS, Borrower has requested that Requisite Lenders agree to waive
the Existing Events of Default;
WHEREAS, in connection with such waiver, Borrower has agreed with
Requisite Lenders to (a) make a $5,000,000 prepayment of the Term Loan,
(b) amend the Loan Agreement to make a $15,000,000 reduction in the Revolving
Loan Limit, the Revolving Loan Commitment of each Lender and the aggregate
Revolving Loan Commitments of all Requisite Lenders, (c) amend the Loan
Agreement to change the maturity date thereof, and (d) otherwise amend the Loan
Agreement in certain respects, as more fully set forth herein;
<PAGE> 2
WHEREAS, Requisite Lenders have agreed to such waivers and amendments
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Requisite Lenders and Borrower hereby agree as follows:
1. Waiver of Existing Events of Default. Requisite Lenders hereby waive
the Existing Events of Default and further waive any rights of Lenders and
Agents under the Loan Agreement, the other Loan Documents and applicable law in
respect of the Existing Events of Default. Other than as specifically described
herein, the waiver contained herein shall not constitute a consent to any
departure from, or the waiver of any breach of, or Default or Event of Default
under, the Loan Agreement or any other Loan Document, or of any rights that any
Lender or any Agent may have under the Loan Agreement, any other Loan Document
or applicable law with respect thereto, all of which rights are expressly
reserved hereby.
2. Amendments to Loan Agreement. In reliance on the representations and
warranties set forth in Section 4 of this Amendment, the Loan Agreement is
hereby amended as follows:
(a) Subsection 1.1 of the Loan Agreement is hereby amended, as follows:
(i) The first clause of the definition of the term "Applicable Non-Use
Fee Margin" up to, but not including the proviso, is hereby amended and
restated in its entirety, as follows:
"'Applicable Non-Use Fee Margin' means a rate equal to one-half of
one percent (0.50%);"
(ii) The first two clauses of the definition of the term "Applicable
Revolving Loan Margin" up to, but not including the proviso, are hereby
amended and restated in their entirety, as follows:
"'Applicable Revolving Loan Margin' means (a) with respect to Base
Rate Revolving Loans, a rate equal to one-half of one percent (0.50%)
and (b) with respect to LIBOR Revolving Loans, a rate equal to three
percent (3.00%);"
(iii) The first two clauses of the definition of the term "Applicable
Term Loan Margin" up to, but not including the proviso, are hereby amended
and restated in their entirety, as follows:
"'Applicable Term Loan Margin' means (a) with respect to Base Rate Term
Loans, a rate equal to one percent (1.00%) and (b) with
-2-
<PAGE> 3
respect to LIBOR Term Loans, a rate equal to three and one-quarter percent
(3.25%);"
(iv) The definition of the term "Revolving Loan Limit" is hereby amended
and restated in its entirety, as follows:
"'Revolving Loan Limit' means an amount equal to (a) $70,000,000 during
the period from February 1 to and including August 1 of each year and
(b) $80,000,000 at all other times."
(v) The definition of the term "Subordinated Debt" is hereby amended by
(A) deleting the word "and" immediately prior to clause (c) thereof and
(B) inserting the following immediately after clause (c) and immediately before
the period:
"; and (d) all Indebtedness owing by Borrower under a certain 6-1/2%
Convertible Debenture dated September 10, 1998 executed by Borrower in
favor of IBP, Inc. (the "IBP Debenture")"
(b) Subsection 2.1(E) of the Loan Agreement is hereby amended by
inserting the following at the end thereof:
"The Revolving Notes and the Term Notes, each dated as of June 1, 1998
and each executed by Borrower in favor of a Lender, shall continue to
evidence the Revolving Loans and the Term Loans, respectively, owing to
such Lender, notwithstanding (i) the $5,000,000 prepayment of the Term
Loans made by Borrower on September 11, 1998 (the "Term Loan Prepayment")
or (ii) the $15,000,000 reduction in each of the Revolving Loan Limit,
the Revolving Loan Commitment of each Lender and the aggregate Revolving
Loan Commitments of all Lenders on September 11, 1998 (the "Revolving
Loan Reduction")."
(c) New subsections 2.3(G) and (H) are hereby inserted into the Loan
Agreement, as follows:
"(G) Restructuring Fee.
Borrower shall pay to Collateral Agent, for the benefit of Lenders,
a fee (the "Restructuring Fee") in connection with that certain Waiver
and Amendment No. 1 to Loan and Security Agreement dated as of September
10, 1998 (the "Amendment"), equal to $750,000, of which (i) $375,000
shall be due and payable, and shall be deemed fully earned, on the date
of execution of the Amendment and (ii) $375,000 shall be due and payable,
and shall be deemed fully earned, on February 1, 1999, unless the
Obligations have been repaid in full and the Loan Agreement terminated
prior to such date.
-3-
<PAGE> 4
(H) Special Fees.
Borrower shall pay to Collateral Agent, for the benefit of Lenders,
additional special fees (collectively, the "Special Fees") in the amounts
set forth below for each date set forth below, which Special Fees shall
be deemed earned on the applicable date set forth below:
Payment Date Special Fee Date Earned
April 30, 1999 $500,000 June 30, 1999
June 30, 1999 $1,000,000 August 31, 1999
August 31, 1999 $1,500,000 August 31, 1999
At Borrower's option, exercised at the payment date of each Special Fee,
each Special Fee shall be payable in cash, through the issuance by
Borrower of warrants for the purchase of nonvoting common stock of
Borrower (collectively, the "Warrants") or through a combination of cash
and Warrants. If Borrower elects to make all or any portion of any
Special Fee payment through the issuance of Warrants, such Warrants shall
be (i) exerciseable for the number of shares of Borrower's nonvoting
common stock which, when multiplied by the "Determination Price" (as
defined in the Warrant), equals the non-cash portion of the applicable
Special Fee payment, (ii) issued by Borrower to the individual Lenders in
proportion to their respective Pro Rata Shares and delivered by Borrower
to Collateral Agent, on behalf of Lenders, (iii) in the form attached
hereto as Exhibit J and (iv) by their terms, exerciseable by the holder
thereof only on or after the date that the applicable Special Fee is
deemed earned, as set forth above. Notwithstanding the foregoing,
Borrower shall not be entitled to opt to issue Warrants in respect of any
Special Fee to the extent that any Lender is unable to hold or receive
the applicable Warrant because of regulatory constraints applicable to
such Lender, whether under the Bank Holding Company Act or otherwise. All
cash paid to Collateral Agent hereunder shall be held by Collateral Agent
as cash Collateral for the Obligations until such time as such cash is
deemed earned hereunder; all Warrants delivered to Collateral Agent
hereunder shall be held by Collateral Agent for the benefit of Lenders
until deemed earned hereunder. If the Obligations are repaid in full and
the Loan Agreement terminated prior to the date that a Special Fee that
has been delivered to Collateral Agent is deemed to have been earned,
Collateral Agent will promptly return such Special Fee to Borrower (and,
in the case of any applicable Warrants, such Warrant shall be
cancelled)."
(d) The first three sentences of subsection 2.5 of the Loan Agreement are
hereby amended and restated in their entirety, as follows:
-4-
<PAGE> 5
"This Agreement shall be effective until August 31, 1999 (the
"Original Term")."
(e) Subsection 6.1 of the Loan Agreement is hereby amended and restated
in its entirety, as follows:
"6.1 Net Worth.
Borrower shall maintain (a) as of the last day of the first Fiscal
Quarter of the 1999 Fiscal year, Net Worth of at least $25,000,000 (the
"Base Net Worth") and (b) as of the last day of the second Fiscal Quarter
of the 1999 Fiscal Year and the last day of such Fiscal Quarter
thereafter, Net Worth of at least the sum of (i) the Base Net Worth plus
(ii) fifty percent (50%) of positive Net Income (if any) for each
complete Fiscal Quarter after the first Fiscal Quarter of the 1999 Fiscal
Year. The foregoing computation shall not take into account any negative
Net Income for any Fiscal Quarter."
(f) Subsection 6.2 of the Loan Agreement is hereby amended and restated
in its entirety, as follows:
"6.2 Intentionally omitted."
(g) The table contained in subsection 6.4 of the Loan Agreement is hereby
amended and restated in its entirety, as follows:
"Period Ratio
Fiscal Periods 1-4 in 1999 Fiscal Year 0.75:1.0
Fiscal Periods 1-7 in 1999 Fiscal Year 1.00:1.0
Fiscal Periods 1-10 in 1999 Fiscal Year 1.00:1.0
13 consecutive Fiscal Periods ending on the
last day of 1999 Fiscal Year 1.00:1.0
(h) Subsection 7.1 of the Loan Agreement is hereby amended by
(i) deleting the word "and" immediately prior to clause (h) thereof and
(ii) inserting the following immediately after clause (h) thereof and
immediately before the period:
"; and (i) Subordinated Debt of up to $10,000,000 owing by Borrower to
IBP, Inc. in respect of the IBP Debenture."
(i) Clause (b) of subsection 7.5 of the Loan Agreement is hereby amended
and restated in its entirety, as follows:
"(b) Borrower may make payments on the Subordinated Debt
(i) evidenced by the Indenture, in accordance with the terms of the
-5-
<PAGE> 6
subordination provisions contained in the Indenture (as it exists on the
date hereof), (ii) evidenced by the IBP Debenture, in accordance with the
terms of the certain Subordination Agreement dated as of September 10,
1998 between IBP, Inc. and Collateral Agent and (iii) evidenced by any
agreement other than the Indenture or the IBP Debenture, in accordance
with the terms of any subordination agreement or other subordination
provisions relating thereto, as applicable."
(j) A new clause (S) is hereby inserted in subsection 8.1 of the Loan
Agreement, as follows:
"(s) Repayment Event.
The occurrence of a "Repayment Event" pursuant to, and as defined in
the IBP Debenture."
(k) The first sentence of subsection 9.1(E) of the Loan Agreement is
hereby amended by inserting the following at the end thereof, immediately before
the period:
"; and provided further, that no Lender shall be liable for any such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses, advances or disbursements unless either (i) the
applicable Agent has requested reimbursement by Borrower in respect of
such amounts and Borrower has failed to reimburse such Agent within 30
days after such request or (ii) Borrower is not required, pursuant to the
terms of the Loan Agreement and the other Loan Documents, to reimburse
such Agent in respect of such amounts."
(l) Clause (vi) of subsection 9.4(A) of the Loan Agreement is hereby
amended by inserting the following at the end thereof, immediately before the
semi-colon:
", or amend any of the definitions used in the definition of Borrowing
Base, other than a reduction of the percentage used in the definition of
Applicable Eligible Meat Inventory Percentage;"
(m) The Commitments of each Lender contained on the signature pages to
the Loan Agreement are hereby amended and restated in their entirety, as
follows:
"COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK
BRANCH
Revolving Loan Commitment: $12,026,250
-6-
<PAGE> 7
Term Loan Commitment: $10,522,750
Total Commitments: $22,549,000
HELLER FINANCIAL, INC.
Revolving Loan Commitment: $14,313,700
Term Loan Commitment: $12,524,500
Total Commitments: $26,838,200
COMERICA BANK, N.A.
Revolving Loan Commitment: $ 9,411,500
Term Loan Commitment: $ 8,235,500
Total Commitments: $17,647,000
SANWA BUSINESS
CREDIT CORPORATION
Revolving Loan Commitment: $ 9,673,250
Term Loan Commitment: $ 8,464,150
Total Commitments: $ 18,137,400
HARRIS TRUST AND SAVINGS BANK
Revolving Loan Commitment $ 12,222,200
Term Loan Commitment: $ 10,694,400
Total Commitments $ 22,916,600
NATIONAL CITY BANK
Revolving Loan Commitment: $ 4,706,200
Term Loan Commitment: $ 4,117,400
Total Commitments: $ 8,823,600
OLD KENT BANK & TRUST COMPANY
Revolving Loan Commitment: $ 3,529,200
-7-
<PAGE> 8
Term Loan Commitment: $ 3,088,400
Total Commitments: $ 6,617,600
TRANSAMERICA BUSINESS CREDIT
CORPORATION
Revolving Loan Commitment: $ 4,706,200
Term Loan Commitment: $ 4,117,400
Total Commitments: $ 8,823,600
FIRST SOURCE FINANCIAL, INC.
Revolving Loan Commitment: $ 9,411,500
Term Loan Commitment: $ 8,235,500
Total Commitments: $ 17,647,000"
(n) A new Exhibit J-Form of Warrant for Special Fees is added to the Loan
Agreement in the form attached hereto as Exhibit J.
3. References; Effectiveness. Requisite Lenders and Borrower hereby agree
that all references to the Loan Agreement which are contained in any of the
other "Loan Documents " (as that term is defined in the Loan Agreement) shall
refer to the Loan Agreement as amended by this Amendment.
4. Representations and Warranties. To induce Requisite Lenders to enter
into this Amendment, Borrower hereby represents and warrants to Agents and
Lenders that:
(a) The execution, delivery and performance by Borrower of this Amendment
are within its corporate power, have been duly authorized by all necessary
corporate action, have received all necessary governmental approval (if any
shall be required), and do not and will not contravene or conflict with any
provision of law applicable to Borrower, the articles of incorporation and
by-laws of Borrower, any order, judgment or decree of any court or governmental
agency, or any agreement, instrument or document binding upon Borrower or any of
its property;
(b) Each of the Loan Agreement and the other Loan Documents, as amended
by this Amendment, are the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with their terms;
(c) The representations and warranties contained in the Loan Agreement
and the other Loan Documents are true and accurate as of the date hereof with
the same force and effect as if such had been made on and as of the date hereof;
-8-
<PAGE> 9
(d) Borrower has performed all of its obligations under the Loan
Agreement and the Loan Documents to be performed by it on or before the date
hereof and, as of the date hereof, Borrower is in compliance with all applicable
terms and provisions of the Loan Agreement and each of the Loan Documents to be
observed and performed by it and no event of default or other event which, upon
notice or lapse of time or both, would constitute an event of default has
occurred.
5. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Amendment.
6. Continued Effectiveness. Except as amended hereby, the Loan Agreement
and each of the Loan Documents shall continue in full force and effect according
to its terms.
7. Costs and Expenses. Borrower hereby agrees that all expenses incurred
by each Agent in connection with the preparation, negotiation and closing of the
transactions contemplated hereby, including, without limitation, reasonable
attorneys' fees and expenses, shall be part of the Obligations.
8. Conditions to Effectiveness. This Amendment shall be effective
immediately upon the completion of the following conditions, each in a manner
satisfactory to each Agent:
(a) delivery to Documentation Agent of this Amendment, executed by
Borrower and Requisite Lenders and accepted by each Corporate Guarantor;
(b) delivery to Documentation Agent of amendments to the Mortgages on
file in Forrest City, Arkansas; Shreveport, Louisiana; Detroit, Michigan; Grand
Rapids, Michigan; Walker, Michigan; Holly Ridge, North Carolina and Ponca City,
Oklahoma, executed by Borrower, reflecting the change in the maturity date of
the Obligations, all in form and substance satisfactory to each Agent;
(c) receipt by Documentation Agent of copies of the fully executed IBP
Debenture, the Supply Agreement between IBP, inc. and Borrower, the Settlement
Agreement between IBP, inc. and Borrower and all related agreements, instruments
and documents, all in form and substance satisfactory to each Agent;
(d) receipt by Documentation Agent of a subordination agreement executed
by IBP, inc. in favor of Collateral Agent, in form and substance satisfactory to
each Agent;
(e) receipt by Collateral Agent of $10,000,000 cash proceeds of
Subordinated Debt loaned by IBP, inc. to Borrower pursuant to the IBP Debenture,
and
-9-
<PAGE> 10
application of (i) $5,000,000 of such proceeds to installments of the Term Loan,
in the inverse order of their maturity and (ii) $5,000,000 of such proceeds to
the Revolving Loans;
(f) receipt by Collateral Agent of the $375,000 portion of the
Restructuring Fee due and payable on the effective date of this Amendment;
(g) delivery to Documentation Agent of a certified copy of resolutions of
the board of directors of Borrower, authorizing the execution of the Amendment
and the other documents and agreements described herein;
(h) receipt by Collateral Agent of a certificate of Borrower's good
standing in the State of Michigan, certified as of a recent date; and
(i) delivery to Documentation Agent of an executed legal opinion of
Honigman, Miller, Schwartz and Cohn addressed to Agents and Lenders and relating
to the Amendment and related transactions, in form and substance satisfactory to
each Agent.
-10-
<PAGE> 11
IN WITNESS WHEREOF, this Amendment has been executed as of the day and
year first written above.
HELLER FINANCIAL, INC.,
as a Lender and as Collateral Agent and as Documentation Agent
for the Lenders
By /s/ Ronald E. Little
-----------------------------------------------------------
Its Vice President
----------------------------------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"Rabobank Nederland", New York Branch, as a Lender and as
Administrative Agent for the Lenders
By /s/ Robert B. Benoit
------------------------------------------------------------
Its Senior V.P.
-----------------------------------------------------------
By /s/ Leigh R. Reed
------------------------------------------------------------
Its V.P.
-----------------------------------------------------------
HARRIS TRUST AND SAVINGS BANK, as a Lender and as Co-Agent for
the Lenders
By /s/ Greg Hennenfent
------------------------------------------------------------
Its V.P.
-----------------------------------------------------------
COMERICA BANK, N.A., as a Lender
By
------------------------------------------------------------
Its
-----------------------------------------------------------
SANWA BUSINESS CREDIT CORPORATION, as a Lender
By /s/ Michael J. Coe
------------------------------------------------------------
Its First V.P.
-----------------------------------------------------------
-11-
<PAGE> 12
NATIONAL CITY BANK, as a Lender
By
------------------------------------------------------------
Its
-----------------------------------------------------------
OLD KENT BANK AND TRUST COMPANY, as a Lender
By
------------------------------------------------------------
Its
-----------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION, as a Lender
By
------------------------------------------------------------
Its
-----------------------------------------------------------
FIRST SOURCE FINANCIAL LLP, as a Lender
By First Source Financial, Inc.
Its Agent/Manager
By /s/ John P. Thacker
------------------------------------------------------------
Its Senior V.P.
-----------------------------------------------------------
THORN APPLE VALLEY, INC., as Borrower
By /s/ Louis Glazier
------------------------------------------------------------
Its Executive Vice President
-----------------------------------------------------------
-12-
<PAGE> 13
Acknowledgment and Acceptance of Corporate Guarantors
Each of the undersigned, in its capacity as a Corporate Guarantor of the
Obligations of Borrower to Agents and Lenders under the Loan Agreement pursuant
to a certain Master Guaranty of Payment dated as of April 16, 1998 (the
"Guaranty"), hereby acknowledges receipt of the foregoing Amendment, accepts and
agrees to be bound by the terms thereof, ratifies and confirms all of its
obligations under the Guaranty and agrees that the Guaranty shall continue in
full force and effect as to it, notwithstanding such amendment.
Dated: September 10, 1998
COAST REFRIGERATED TRUCKING CO., INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
CAVANAUGH LAKEVIEW FARMS, LTD.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
CROWN WEST, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
FREDERICK HOLDINGS, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
GUNSBERG CORNED BEEF COMPANY
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
-13-
<PAGE> 14
MILLERS TRANSPORT INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
NATIONAL FOOD EXPRESS, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
PONCA HOLDINGS, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
THORN APPLE VALLEY FOREIGN SALES CORPORATION
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
THORN APPLE VALLEY HOLDINGS OF INDIANA, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
TILLMAN HOLDINGS, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
TRI-MILLER PACKING CO.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
-14-
<PAGE> 15
TRI-MILLER TRANSPORTATION COMPANY
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
TAV BRANDS, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
TAV SWINE BUYING STATIONS, INC.
By Ronald D. Risher
---------------------------------------------------
Its V.P. and Controller
--------------------------------------------------
-15-
<PAGE> 16
EXHIBIT J
Form of Warrant for Special Fees
Attached.
<PAGE> 17
EXHIBIT J
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. THE EXERCISE OF THIS WARRANT IS SUBJECT TO COMPLIANCE
WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
THORN APPLE VALLEY, INC.
WARRANT TO PURCHASE _______ NON-VOTING COMMON SHARES
THIS CERTIFIES THAT, for value received, ____________________ (the
"Holder") is entitled to subscribe for and purchase _______ of the fully paid
and nonassessable non-voting common shares (as adjusted pursuant to Section 2
hereof, the "Shares") of Thorn Apple Valley, Inc., a Michigan corporation (the
"Company"), at the price of $0.01 per Share (such price and such other price as
shall result, from time to time, from the adjustments specified in Section 2
hereof, is herein referred to as the "Warrant Price"), subject to the provisions
and upon the terms and conditions hereinafter set forth. Any permitted assignee
of this Warrant, by acceptance hereof assumes and agrees to the rights and
restrictions set forth herein.
1. Term. This Warrant is issued on _________________ (the "Issue
Date"). The purchase right represented by this Warrant is exercisable in whole
or in part, at any time and from time to time, from ________________ (the
"Effective Date") through the date that is ten (10) years after the Effective
Date.
2. Adjustment of Warrant Price and Number of Shares. The Warrant Price
and the number of Shares issuable upon the exercise of this Warrant shall be
subject to adjustment from time to time, and the Company agrees to provide
notice upon the happening of certain events as follows:
(a) Reclassification, etc. If the Company at any time shall,
by subdivision, combination or reclassification of securities or otherwise,
change any of the securities to which purchase rights under this Warrant exist
into the same or a different number of securities of any class or classes, this
Warrant shall thereafter permit the Holder to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change. If shares of the class of the Company's capital stock for which this
Warrant is being exercised are subdivided or combined into a greater or smaller
number of shares, the Warrant Price and the Determination Price (as defined
below) shall be proportionately reduced in case of subdivision of shares or
proportionately increased in the case of combination of shares, in both cases by
the ratio which the total number of shares of such class to be outstanding
immediately after such event bears to the total number of shares of such class
outstanding immediately prior to such event.
<PAGE> 18
(b) Adjustment for Dividends in Shares. In case at any time or
from time to time on or after the Issue Date the holders of the common shares of
the Company (or any other shares or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible shareholders, shall have become
entitled to receive, without payment therefor, other or additional shares of the
Company by way of dividend, then and in each case, the Holder shall, upon the
exercise hereof, be entitled to receive, in addition to the number of Shares
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional shares of the Company which
such Holder would hold on the date of such exercise had it been the holder of
record of such Shares on the Issue Date and had thereafter, during the period
from the Issue Date to and including the date of such exercise, retained such
shares and/or all other additional shares receivable by it as aforesaid during
such period, giving effect to all adjustments called for during such period by
paragraphs (a) and (b) of this Section 2.
(c) Adjustment for Certain Issuances. If the Company shall, at
any time or from time to time prior to the expiration date of this Warrant, (i)
issue any common shares and the consideration received by the Company shall be
less than $7.50 per common share (as adjusted from time to time as set forth
herein, the "Determination Price"), or (ii) issue any securities which by their
terms are convertible into or exchangeable for common shares of the Company
(herein "Convertible Securities") or represent the right to purchase common
shares or Convertible Securities and the sum of the consideration per common
share receivable upon conversion or exchange of such Convertible Securities or
upon exercise of such purchase rights, plus the consideration per share received
by the Company upon the issuance of such Convertible Securities or purchase
rights, shall be less than the Determination Price at the date of issuance, the
aggregate exercise price of this Warrant shall remain unchanged but the number
of Shares receivable upon the exercise of this Warrant shall be increased as
follows: the number of shares receivable upon the exercise of this Warrant
immediately prior to the issue of such common shares (or such Convertible
Securities or purchase rights, as the case may be) shall be multiplied by a
fraction, of which (x) the numerator shall be the number of common shares (on a
fully diluted basis assuming the exercise of all warrants or options to purchase
common shares and the conversion of all Convertible Securities) outstanding
immediately prior to such issue plus the number of common shares issued (or the
maximum number of common shares issuable upon conversion or exchange of such
Convertible Securities or exercise of such purchase rights at their initial
conversion, exchange or exercise price or rate, as the case may be), and of
which (y) the denominator shall be the number of common shares outstanding
immediately prior to such issue (on a fully diluted basis assuming the exercise
of all warrants or options to purchase common shares and the conversion of all
Convertible Securities) plus the number of common shares which the aggregate
consideration received by the Company upon the issuance of such common shares
(or the aggregate consideration received by the Company upon the issuance of
such Convertible Securities or purchase rights plus the aggregate consideration
receivable upon exercise of all such Convertible Securities or purchase rights,
as the case may be) would purchase at the Determination Price. If the Company
issues any common shares or issues any Convertible Securities or rights to
purchase common shares or Convertible Securities for a consideration per share
less than the Determination Price, then the Determination Price shall be
2
<PAGE> 19
adjusted by multiplying the then-current Determination Price by a fraction, the
numerator of which is the number of common shares for which this Warrant could
be exercised immediately prior to such issuance and the denominator of which is
the number of common shares for which this Warrant could be exercised
immediately following such issuance.
(d) Certificate of Adjustment. Whenever the Warrant Price or
number or type of securities issuable upon exercise of this Warrant is adjusted,
as herein provided, upon the request of the Holder, the Company shall promptly
deliver to the Holder a certificate of an officer of the Company setting forth
the nature of such adjustment and a brief statement of the facts requiring such
adjustment.
3. No Shareholder Rights. This Warrant, by itself as distinguished from
the Shares purchasable hereunder, shall not entitle the Holder to any of the
rights of a shareholder of the Company.
4. Authorization and Reservation of Stock. The Company will reserve
from its authorized and unissued non-voting common shares a sufficient number of
shares to provide for the issuance of the Shares upon the exercise of this
Warrant. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing certificates to
execute and issue the necessary certificates for the Shares upon the exercise of
this Warrant.
5. Exercise of Warrant; Net Exercise.
(a) Exercise of Warrant. Subject to compliance with applicable
federal and state securities laws, this Warrant may be exercised in whole or in
part by the Holder at any time by the surrender of this Warrant, together with
the Notice of Exercise and Investment Representation Statement attached hereto
as Exhibits A and B, respectively, duly completed and executed, at the principal
office of the Treasurer of the Company, accompanied by payment in full of the
Warrant Price in cash or by check with respect to the Shares being purchased
(except with respect to any purchase in accordance with Section 5(b) below).
This Warrant shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided above,
and the person entitled to receive the Shares issuable upon such exercise shall
be treated for all purposes as the holder of such Shares of record as of the
close of business on such date. As promptly as practicable after such date, the
Company shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of full common shares issuable
upon such exercise. Upon any partial exercise of this Warrant, the Company will
issue to the Holder a new warrant for the number of the Shares as to which this
Warrant was not exercised.
(b) Net Exercise. In lieu of exercising this Warrant or any
portion thereof and paying the exercise price by cash or check, the Holder shall
have the right to convert this Warrant or any portion thereof into the number of
Shares to be computed using the following formula:
3
<PAGE> 20
X = (P) (Y) (A-B)
-------------
A
where X = the number of Shares to be issued to the Holder for the portion of
this Warrant being converted,
P = the portion of this Warrant being converted (expressed as a
decimal),
Y = the total number of Shares issuable upon exercise of this Warrant
in full,
A = the closing price of one common share as reported by the New
York Stock Exchange on the date of exercise of this Warrant,
and
B = the exercise price of the Shares on the date of receipt by
the Company of the notice of conversion.
Upon such conversion, the portion of this Warrant represented by the variable
"P" above shall be cancelled.
(c) Fractional Shares. No fractional common shares will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the common shares on the date of exercise as reasonably determined in
good faith by the Company's Board of Directors.
6. Registration Rights.
6.1 Registration Obligations. The securities entitled to the benefit of
this Section 6 are the Shares acquired by the Holder upon exercise of this
Warrant and owned by the Holder following conversion as provided in the next
sentence of this Section 6.1 (the "Registerable Shares"). Upon the exercise of
this Warrant, the non-voting common shares shall be convertible, on a
one-for-one basis, into voting common shares of the Company for purposes of the
Registration Rights granted to the Holder under this Section 6. Upon any request
of the Holder, the Company shall file a "shelf" registration statement under the
Securities Act to register any or all of the Holder's Registerable Shares under
the Securities Act of 1933, as amended (the "Securities Act"). The Company will
pay all registration expenses in connection with any requested registration of
Registerable Shares under this Section 6. The registration expenses referred to
in the preceding sentence include the fees and expenses of counsel to the
Company and of the Company's accountants, the costs and expenses incident to the
preparation, printing and filing by the Company of the registration statement
(including the financial statements included in, and all amendments and exhibits
to, the registration statement), the preliminary prospectus and the final
prospectus and any amendment or supplement to any of the foregoing, the filing
fees of the Securities and Exchange Commission (the "SEC"), the National
Association of Securities Dealers, Inc., and of any state securities or blue sky
authorities, the fees and expenses of counsel in connection with the
qualification of the securities under state
4
<PAGE> 21
securities or blue sky laws, any fees relating to the listing of the securities
on the National Association of Securities Dealers, Inc. Automated Quotation
System or in any other market in which the Company's securities are traded, the
cost of printing certificates representing the securities being offered, and any
fees of the transfer agent. The Holder shall be solely responsible for any
underwriting discounts or commissions applicable to the Holder's securities sold
in the offering.
6.2 Registration Procedures. If and whenever the Company is requested
to effect the registration of any Registerable Shares under the Securities Act
as provided in Section 6.1, the Company will promptly:
(a) prepare and file with the SEC a registration statement
with respect to such Registerable Securities and use its reasonable
efforts to cause such registration statement to become effective;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have
been disposed of in accordance with the intended methods of disposition
by the Holder as set forth in such registration statement;
(c) furnish to the Holder such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, and such other documents, as
the Holder may reasonably request in order to facilitate the
disposition of the Registerable Shares owned by the Holder;
(d) use its reasonable efforts to register or qualify such
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the Holder shall
reasonably request, and do any and all other acts and things which may
be necessary or advisable to enable the Holder to consummate the
disposition in such jurisdictions of the Registerable Shares owned by
the Holder, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified, or to consent to
general service of process in any such jurisdiction;
(e) notify the Holder of Registerable Shares covered by such
registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, is known by the Company to
include an untrue statement of material fact or to omit to state any
material fact required to be stated therein or necessary to make
statements therein not misleading in the light of the circumstances
then
5
<PAGE> 22
existing (provided that the period during which such a condition may
occur shall not be permitted by the Company to persist for longer than
30 days nor shall two or more such periods be permitted by the Company
to persist for an aggregate of longer than 60 days during any year of
the term of such registration), and prepare and furnish to the Holder a
reasonable number of copies of a supplement to, or an amendment of,
such prospectus as may be necessary so that, as delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(f) advise the Holder as to the time when such registration
statement becomes effective and as to the issuance by the SEC of any
stop order suspending the effectiveness of such registration statement
or the institution of any proceedings for that purpose, and use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible the lifting thereof, if issued; and
(g) indemnify and hold harmless the Holder, and any
underwriter or broker in respect thereto, or any controlling person of
the Holder or any such underwriter or broker, against any losses,
claims, damages or liabilities, joint or several, to which the Holder
or such underwriter, broker or controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement of any material fact contained in
the registration statement, the prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out
of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading and will reimburse the Holder and each such
underwriter, broker or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action
(provided, however, that the Company will not be liable to the Holder
(or to a controlling person of the Holder) in any case to the extent
that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any such document or amendment or
supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by, or on behalf of, the Holder
specifically for use therein), and provide the Holder with customary
contribution in the event that such indemnification shall be
unavailable for any reason.
The Company may require the Holder to furnish to the Company information
regarding the Holder and the distribution of the Registerable Securities as
the Company may from time to time reasonably request.
7. No Transfer of Warrant. This Warrant may not be assigned, sold,
pledged, hypothecated or otherwise transferred unless and until the Holder
hereof provides the Company with an opinion of counsel satisfactory to the
Company and the Company's counsel that appropriate action necessary for
compliance with all applicable federal and state securities laws
6
<PAGE> 23
has been taken or an exemption from the requirements of such securities laws is
available and that such transfer will not violate any of such securities laws.
8. Miscellaneous. This Warrant shall be governed by the internal laws
of the State of Michigan. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the Company and the Holder. All notices and other communications from the
Company to the Holder shall be delivered personally or mailed by first class
mail, postage prepaid, to the address furnished to the Company in writing by the
last Holder of this Warrant who shall have furnished an address to the Company
in writing, and if mailed shall be deemed given three days after deposit in the
United States mail.
ISSUED this _____ day of __________, _____.
THORN APPLE VALLEY, INC.
By:_____________________________
Its:_________________________
Accepted and agreed to:
By:__________________________
Its:______________________
7
<PAGE> 24
EXHIBIT A
NOTICE OF EXERCISE
TO: THORN APPLE VALLEY, INC.
1. The undersigned hereby:
/ / elects to purchase ________________ non-voting
common shares of Thorn Apple Valley, Inc. pursuant to
the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, or
/ / elects to exercise its net issuance rights pursuant
to Section 5(b) of the attached Warrant with respect
to non-voting common shares.
2. Please issue a certificate or certificates representing said
non-voting common shares in the name of the undersigned or in such other name as
is specified below:
_________________________________
(Name)
_________________________________
(Address)
____________________________ ________________________________________
(Date) (Name of Warrant Holder)
By: _________________________________
Title: _________________________________
(name of purchaser, and title and
signature of authorized person)
8
<PAGE> 25
EXHIBIT B
INVESTMENT SUITABILITY AND REPRESENTATION STATEMENT
__________ Non-Voting Common Shares of Thorn Apple Valley, Inc.
In connection with the purchase of the above-listed securities, the
undersigned hereby represents to Thorn Apple Valley, Inc. (the "Company") as
follows:
Investment Representation.
(a) The undersigned understands that the shares of stock to be received
upon the exercise of the Warrant (the "Securities") at the time of issuance may
not be registered under the Securities Act of 1933, as amended (the "Act"), and
applicable state securities laws, on the ground that the issuance of such
securities is exempt pursuant to Section 4(2) of the Act and state law
exemptions relating to offers and sales not by means of a public offering, and
that the Company's reliance on such exemptions is predicated on the
undersigned's representations set forth herein.
(b) The undersigned agrees that in no event will it make a disposition
of any Securities acquired upon the exercise of the Warrant unless and until (i)
the Securities shall have been registered under the Act or (ii) it shall have
furnished the Company with an opinion of counsel satisfactory to the Company and
the Company's counsel to the effect that (A) appropriate action necessary for
compliance with the Act and any applicable state securities laws has been taken
or an exemption from the registration requirements of the Act and such laws is
available, and (B) that the proposed transfer will not violate any of said laws.
(c) The undersigned represents that it is able to fend for itself in
the transactions contemplated by this Statement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investments, and has the ability to bear the economic
risks (including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary to verify the accuracy of or to
amplify the Company's disclosures, and has had all questions which have been
asked by it satisfactorily answered by the Company.
(d) The undersigned acknowledges that the Securities issuable upon
exercise of the Warrant must be held indefinitely unless registered under the
Act or an exemption from such registration is available. The undersigned is
aware of the provisions of Rule 144 promulgated under the Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being
through a "broker's transaction" or in transactions directly with a "market
<PAGE> 26
maker" (as provided by Rule 144(f)) and the number of shares being sold during
any three-month period not exceeding specified limitations.
Dated:____________________
______________________________________
(Signature)
______________________________________
(Typed or Printed Name)
______________________________________
(Title)
2
<PAGE> 1
EXHIBIT 10(s)
THORN APPLE VALLEY, INC.
$10,000,000
6 1/2% CONVERTIBLE DEBENTURE
DUE: SEPTEMBER 9, 2003
<PAGE> 2
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION UNDER THE ACT AND ANY APPLICABLE
STATE ACT.
THIS DEBENTURE IS SUBJECT TO A SUBORDINATION AGREEMENT, DATED AS OF SEPTEMBER
10, 1998 AMONG HELLER FINANCIAL, INC., A DELAWARE CORPORATION, AS COLLATERAL
AGENT FOR CERTAIN LENDERS, THORN APPLE VALLEY, INC., A MICHIGAN CORPORATION AND
IBP, INC., A DELAWARE CORPORATION. THIS DEBENTURE IS SUBORDINATED IN RIGHT AND
TIME OF PAYMENT TO THE PRIOR INDEFEASIBLE PAYMENT IN FULL IN CASH OF ALL SENIOR
DEBT (AS DEFINED THEREIN) IN ACCORDANCE WITH THE TERMS OF SUCH SUBORDINATION
AGREEMENT AND EACH HOLDER OF THIS DEBENTURE, BY ITS ACCEPTANCE HEREOF,
IRREVOCABLY AGREES TO BE BOUND BY THE TERMS AND PROVISIONS OF SUCH SUBORDINATION
AGREEMENT.
THORN APPLE VALLEY, INC.
6 1/2% CONVERTIBLE DEBENTURE
$10,000,000 SOUTHFIELD, MICHIGAN
SEPTEMBER 10, 1998
FOR VALUE RECEIVED, THORN APPLE VALLEY, INC., a Michigan corporation
(the "Company"), promises to pay to the order of IBP, inc., a Delaware
corporation ("IBP"), in lawful money of the United States of America, the
principal sum of TEN MILLION DOLLARS ($10,000,000), together with interest
accrued on the unpaid balance of such principal amount, at a rate of interest of
six and one-half percent (6 1/2%) per annum from the period commencing on the
date of this Convertible Debenture (the "Debenture"). The interest hereunder
will be paid quarterly, and the principal hereunder will be repaid in full on
September 9, 2003. This Debenture is not callable by the Company prior to
September 9, 2003, and may not be prepaid in whole or in part.
1. Definitions and Rules of Construction.
1.1 Definitions.
"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.
"Board of Directors" means the Board of Directors of the Company or
any committee of the Board.
"Business Day" means a day that is not a Legal Holiday within the
United States.
<PAGE> 3
"Change in Control" of the Company 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) 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 50%
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 50% 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 this Debenture and provides for appropriate
conversion rights; provided further that, in the case of a sale of
assets as described in this paragraph 1.1(b)(iii), the Company shall
remain obligated to IBP under the terms and conditions of this
Debenture, 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"
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
(c) 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 acquire 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 Debenture 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. "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
2
<PAGE> 4
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.
"Company" means Thorn Apple Valley, Inc., a Michigan corporation.
"conversion price" has the meaning provided in Section 2.2.
"Debenture" means this 6 1/2% Convertible Debenture as amended or
supplemented from time to time.
"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 Exchange Act of 1934, as
amended.
"Event of Default" has the meaning provided in Section 6.1.
"GAAP" means generally accepted accounting principles, consistently
applied.
"IBP" means IBP, inc., a Delaware corporation.
"Legal Holiday" has the meaning provided in Section 7.2.
"Material Subsidiary" means any wholly-owned Subsidiary of the Company
the total tangible assets of which equal or exceed 10% 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.
"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.
"Repayment Event" means any of the following:
(a) a Change in Control of the Company has occurred; or
3
<PAGE> 5
(b) the Supply Agreement, dated as of September 10, 1998, by
and between the Company and IBP has been terminated by (i) IBP due to a
material breach of such agreement by the Company or (ii) the Company
for a reason other than IBP's material breach of such agreement; or
(c) an Event of Default as described in Section 6.1(d)
below has occurred; or
(d) a failure, after receipt by the Company of written notice
from IBP and an opportunity to cure such failure, to make any payment,
or to fulfill any other material obligation, under the Settlement
Agreement dated May 28, 1998 between the Company and IBP.
"SEC" means the Securities and Exchange Commission.
"Senior Lenders" means the Lenders under the Loan and Security
Agreement, dated as of April 16, 1998, by and among the Company, Heller
Financial, Inc., as Collateral Agent, Documentation Agent and a Lender,
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as Administrative Agent and a Lender, Harris Trust and Savings
Bank, as Co-Agent and a Lender, and the other Lenders party thereto from time to
time.
"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 Debenture.
"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 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.
1.2 Rules of Construction. Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted
accounting principles, consistently applied;
(c) "or" is not exclusive; and
(d) words in the singular include the plural, and the plural
include the singular.
4
<PAGE> 6
2. Payment of Interest; Conversion of Debenture.
2.1 Payment of Interest. The Company will pay to IBP interest on the
outstanding principal amount of this Debenture at the rate of 6 1/2% per annum.
The Company will pay interest quarterly on January 1, April 1, July 1 and
October 1 of each year, commencing with October 1, 1998. Interest on this
Debenture will accrue from the most recent date to which interest has been paid.
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.
Each payment shall be made to IBP in immediately available funds by 1:00 p.m.
(Central time) on the due date for such payment. Payments shall be wired to the
bank account designated in writing by IBP (which may be changed by subsequent
written notice).
2.2 Right to Convert. Subject to and upon compliance with the
provisions of this Article 2, at the option of IBP at any time, or from time to
time, at or before the close of business on September 9, 2003, this Debenture,
or any portion hereof, may be converted into duly authorized, validly issued,
fully paid and non-assessable Shares at the initial conversion price of $14.00
per Share, or, in case an adjustment in the conversion price has taken place
pursuant to the provisions of this Article 2, then at the applicable conversion
price as so adjusted. The initial conversion price specified in this Section
2.2, as adjusted from time to time pursuant to the provisions of this Article 2,
is referred to as the "conversion price". IBP will give written notice
substantially in the form attached to this Debenture as Exhibit A to the Company
of its intention to convert all or some portion of this Debenture.
2.3 Issuance of Shares on Conversion; Restated Debenture. As promptly
as practicable after the surrender of this Debenture for conversion, the Company
will deliver or cause to be delivered to IBP, a certificate or certificates
representing the number of duly authorized, validly issued, fully paid and
non-assessable Shares into which such Debenture will be converted in accordance
with the provisions of this Article 2. Such conversion may be deemed to have
been made at the time that this Debenture is surrendered to the Company for
conversion. IBP's rights as a holder of this Debenture will cease at such time
(to the extent this Debenture has been converted) and IBP will be treated for
all purposes as having become the record holder of such Shares at such time and
upon such conversion. If this Debenture is converted in part only, upon
conversion and surrender of this Debenture, the Company will execute and deliver
to IBP, a new Debenture, in an aggregate principal amount equal to the
unconverted portion of the principal amount of this Debenture.
2.4 No Adjustment for Interest or Dividends. Subject to Section 2.5
hereof, no payment or adjustment of this Debenture will be made, other than in
cash, on conversion of this Debenture for interest accrued hereon or for
dividends on Shares issued upon conversion of this Debenture.
2.5 Antidilution Adjustments. The conversion price in effect at any
time will be subject to adjustment as follows:
(a) In case the Company (i) declares a dividend on its Shares
payable in
5
<PAGE> 7
shares of its capital stock, (ii) subdivides its outstanding Shares,
(iii) combines its outstanding Shares into a smaller number of
shares, (iv) issues 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)
or (v) otherwise changes the number of Shares outstanding without
receiving fair consideration therefor, 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 will be
proportionately adjusted so that IBP will be entitled to receive the
aggregate number of Shares or other securities of the Company that it
would have owned or would have been entitled to receive after the
happening of any of the events described above, had this Debenture been
converted immediately prior to the happening of such event (or the
record date therefor). Such adjustment will be made successively
whenever any event listed above occurs.
(b) In case the Company fixes 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 will be adjusted so that the
same will equal the price determined by multiplying the conversion
price in effect immediately prior to such record date by a fraction, of
which the numerator will 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 will 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 will be made successively
whenever such a record date is fixed. If such rights or warrants are
not so issued, the conversion price will 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 will not affect the
number of Shares issued upon any conversion prior to the date such
adjustment is made.
(c) In case the Company fixes 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 will be determined by multiplying the
conversion price in effect immediately prior to such record date by a
fraction, of which the numerator will 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 will be conclusive) 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 will be
6
<PAGE> 8
such current market price per Share. Such adjustment will be made
successively whenever such a record date is fixed; and if such
distribution is not made, the conversion price will 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 will not affect the
number of Shares issued upon any conversion prior to the date such
adjustment is made.
(d) In case the Company issues 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
the Debenture, or upon conversion or exchange of other securities
issued before or 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 Debenture 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 arms-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 will
be adjusted immediately after the issuance of such additional Shares so
that it equals the price determined by multiplying the conversion price
in effect immediately prior thereto by a fraction, of which the
numerator will 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 will be the number of Shares outstanding
immediately after the issuance of such additional Shares. Such
adjustment will be made successively whenever such an issuance is made.
(e) In case the Company issues 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 will be adjusted immediately thereafter so
that it equals the price determined by multiplying the conversion price
in effect immediately prior thereto by a fraction, of which the
numerator will 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 will 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
7
<PAGE> 9
securities at the initial conversion or exchange price or rate. Such
adjustment will 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 will
apply:
(i) in the case of the issuance of Shares for
cash, the consideration will be the amount
of such cash, provided that in no case will
any deduction be made for any commissions,
discounts or other expenses incurred by the
Company for any underwriting of the issuance
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 will
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 will be
conclusive; 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 will 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 2.6, the current market price
per Share on any record date will 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 will
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 the Nasdaq Stock Market or any
comparable system, or if the Shares are not listed on the Nasdaq Stock
Market or a comparable 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) All calculations under this Section 2.5 will be made to
the nearest cent or to the nearest one-thousandth of a Share, as the
case may be. Anything in this Section 2.5
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<PAGE> 10
to the contrary notwithstanding, the Company will be entitled to make
such reductions in the conversion price, in addition to those required
by this Section 2.5, as it in its reasonable discretion determines 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 will not be taxable.
(i) Whenever the conversion price is adjusted, as herein
provided, the Company will promptly deliver to IBP a certificate of a
firm of independent public accountants selected by the Board of
Directors (who may be the regular independent 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. Absent manifest error, such
certificate will be conclusive evidence of the correctness of such
adjustment.
(j) If, at any time, as a result of an adjustment made
pursuant to paragraph (a) above, IBP becomes entitled to receive any
shares of the Company other than Shares, thereafter the number of such
other shares so receivable upon conversion of this Debenture will 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 2.3 and 2.6 to 2.10, inclusive, with respect to
the Shares will apply on like terms to any such other shares.
2.6 No Fractional Shares to be Issued. No fractional Shares will be
issued upon conversion of this Debenture. In lieu of issuing any fractional
Share, the Company will 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 2.5 above) on the
day of conversion.
2.7 Effect of Consolidation, Merger, Conveyance or Transfer. In case of
any reclassification (excluding those referred to in paragraph (a) of Section
2.5), 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 has
been merged or the person that has acquired by conveyance or transfer such
property and assets, as the case may be, will execute and deliver to IBP a
supplemental debenture providing that IBP will have, in lieu of the right to
convert this Debenture into Shares, the right thereafter to convert this
Debenture 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
this Debenture might have been converted immediately prior to such
reclassification, consolidation, merger, conveyance or transfer. The above
provisions of this Section will similarly apply to successive reclassifications,
consolidations, mergers, conveyances or transfers.
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<PAGE> 11
2.8 Notice to IBP Prior to Certain Actions. In case:
(a) the Company authorizes the issuance to any 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 authorizes the distribution to any 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 50% or more of the
properties and assets of the Company; or
(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 2.5)
which would require an adjustment of the conversion price pursuant to
Section 2.5; or
(f) the Company authorizes the issuance of any Shares or
incurs any debt (other than trade payables incurred in the ordinary
course of business or debt in the aggregate principal amount of less
than $5,000,000);
then the Company will provide to IBP 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 will 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 will 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.
2.9 Company to Reserve Shares. The Company 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 this Debenture as herein
provided, such number of Shares as will then be issuable upon the conversion of
the entire amount of this Debenture. The Company covenants that all Shares which
will be so issuable will, when issued, be duly and validly issued and fully paid
and non-assessable. The Company covenants that, upon conversion of this
Debenture as herein provided, there will be credited to the capital account with
respect to the Shares from the
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<PAGE> 12
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
will 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 Debenture converted,
less the amount of cash paid in lieu of the issuance of fractional shares on
such conversion, will be deemed to be the amount of consideration for which the
Shares issuable upon such conversion are issued.
2.10 Taxes on Shares Issued. The issuance of certificates for Shares
upon the conversion of this Debenture will be made without charge to IBP for any
tax in respect of the issuance of such certificates, and such certificates will
be issued in the name of IBP; provided, however, that the Company will 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 IBP, and the Company will not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof will have paid to the Company the amount of such tax or will have
established to the satisfaction of the Company that such tax has been paid.
3. Subordination Agreement. This Debenture shall be subject to the
terms and conditions of a Subordination Agreement, dated as of September 10,
1998 among Heller Financial, Inc., a Delaware corporation, as Collateral Agent
for the Senior Lenders, the Company and IBP (the "Subordination Agreement").
This Debenture is subordinated in right and time of payment to the prior
indefeasible payment in full in cash of all senior debt (as defined therein) in
accordance with the terms of such Subordination Agreement and each holder of
this Debenture, by its acceptance hereof, irrevocably agrees to be bound by the
terms and provisions of such Subordination Agreement.
4. Covenants.
4.1 Payment of Debenture. The Company will pay the principal of and
interest on this Debenture on the dates and in the manner provided herein. The
Company will pay interest on overdue principal at the rate borne by this
Debenture plus two percentage points; it will pay interest on overdue
installments of interest at the same rate to the extent lawful.
4.2 Corporate Existence. The Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
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 will not be required to preserve any such right or franchise if the
Board of Directors, or the board of directors of the Subsidiary concerned,
determines 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 IBP.
4.3 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same becomes delinquent:
(a) all taxes, assessments
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<PAGE> 13
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 (b)
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 will 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.
4.4 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 4.4 will 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.
4.5 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 this Debenture,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Debenture; 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 IBP, but will suffer and permit the
execution of every such power as though no such law had been enacted.
4.6 Repayment of Debenture Upon Repayment Event.
(a) If a Repayment Event occurs, the Company will make an
offer to repay this Debenture. The Company's offer must remain open for
at least 45 days and not more than 60 days after the date that the
Repayment Event Notice described below is mailed to IBP, and must be
made at a price of 100% of the principal amount of the Debenture, plus
accrued and unpaid interest through the date of repayment.
(b) The Company will give written notice (the "Repayment Event
Notice") of a Repayment Event within 30 days after it occurs, together
with its offer to repay this Debenture as specified above. IBP is not
required to inquire about, or learn of, the occurrence of a Repayment
Event. The Repayment Event Notice will include the following:
(i) a description of the Repayment Event and the date on
which it is deemed
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<PAGE> 14
to have occurred, together with a brief description
of any material developments in the Company's
business;
(ii) the date by which IBP must give notice of its
intention to accept repayment of this Debenture, as
provided in paragraph (c) below;
(iii) the repayment amount (100% of the then-outstanding
principal amount of this Debenture) and the date on
which the Company will pay such amount to IBP; and
(iv) that any portion of this Debenture not repaid will
continue to earn interest and be an outstanding
obligation of the Company.
(c) If IBP elects to accept repayment of only a portion of
this Debenture by the Company, the Company will execute and deliver to
IBP a restated debenture reflecting the principal amount remaining
under this Debenture after taking into account the portion repaid by
the Company.
4.7 Insurance. The Company will maintain or cause to be maintained,
with financially sound and reputable insurers, business interruption, public
liability and property damage insurance with respect to its business and
properties and the business and properties of its Subsidiaries against loss or
damage of the kinds customarily carried or maintained by corporations of
established reputation engaged in similar businesses and in amounts acceptable
to IBP.
4.8 Accounting Records; Reports.
(a) The Company will maintain a standard and modern system for
accounting in accordance with sound business practices to permit the
preparation of financial statements in accordance with GAAP throughout
all accounting periods and to comply with the requirements of this
Debenture. The Company will furnish to IBP, on a quarterly basis, a
certificate, in the form attached to this Debenture as Exhibit B,
signed by an Officer of the Company attesting to the compliance by the
Company with each covenant contained in this Agreement and attesting to
the fact that no default exists, or with notice or lapse of time or
both will exist, under this Debenture or under any other material
agreement of the Company. Within fifteen days after filing any reports
with the SEC, the Company will provide IBP with a copy of such reports.
(b) Within ten calendar days after becoming aware of the
occurrence of any Event of Default under this Debenture or any default
under any material agreement of the Company, the Company will notify
IBP of such default or Event of Default.
4.9 Preemptive Rights. So long as this Debenture is outstanding and
owned by the Holder, the Holder shall have a preemptive right (that is, a right
to purchase its pro rata share of all capital stock of the Company on a fully
diluted basis assuming the exercise of this Debenture
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<PAGE> 15
and of all other outstanding options and warrants to purchase capital stock of
the Company, based on its holdings at that date, on the same terms and
conditions as those upon which such capital stock is proposed to be sold) to
acquire any shares of capital stock of the Company, including unissued shares or
any rights or options to purchase such capital stock, or any securities
convertible into such capital stock (collectively, "Capital Stock"), authorized
by the Board of Directors of the Company for issuance after the date hereof;
provided, however, that the foregoing provision shall not apply to any such
Capital Stock of the Company: (i) issued to effect any merger, consolidation,
recapitalization, or acquisition of assets or acquisition of another corporation
or other entity; or (ii) issued upon the exercise of warrants or options held by
officers, directors or other employees of the Company or warrants issued to
Senior Lenders. In connection with the exercise of options granted pursuant to
the Company's employee stock option plans or in connection with the exercise of
warrants issued to the Senior Lenders, the Holder shall have the option at any
time or from time to time during the term of this Debenture to purchase Shares
at a price of $10 per share in order to maintain its percentage holdings of the
capital stock of the Company on the date hereof on a fully-diluted basis
assuming the exercise of this Debenture and of all other outstanding options and
warrants to purchase capital stock of the Company; provided that the $10 per
share purchase price shall be subject to adjustment as provided in Section 2.5
above; and provided further that the determination of the Holder's percentage
holdings of the capital stock of the Company shall be adjusted downward each
time the Holder fails to exercise its preemptive rights as provided in this
Section 4.9 and each time any shares of capital stock are issued as described in
clause (i) above.
5. Registration Rights.
5.1 Registration Obligations. The securities entitled to the benefit of
this Section 5 are the Shares acquired by IBP or any holder of the Debenture
(for purposes of this Section 5, the "Holder") upon conversion of this Debenture
and owned by the Holder (the "Registerable Shares"). Upon any request of the
Holder, the Company shall file a "shelf" registration statement under the
Securities Act to register any or all of the Holder's Registerable Shares under
the Securities Act of 1933, as amended (the "Securities Act"). The Company will
pay all registration expenses in connection with any requested registration of
Registerable Shares under this Section 5. The registration expenses referred to
in the preceding sentence include the fees and expenses of counsel to the
Company and of the Company's accountants, the costs and expenses incident to the
preparation, printing and filing by the Company of the registration statement
(including the financial statements included in, and all amendments and exhibits
to, the registration statement), the preliminary prospectus and the final
prospectus and any amendment or supplement to any of the foregoing, the filing
fees of the SEC, the National Association of Securities Dealers, Inc., and of
any state securities or blue sky authorities, the fees and expenses of counsel
in connection with the qualification of the securities under state securities or
blue sky laws, any fees relating to the listing of the securities on the
National Association of Securities Dealers, Inc. Automated Quotation System or
in any other market in which the Company's securities are traded, the cost of
printing certificates representing the securities being offered, and any fees of
the transfer agent. The Holder shall be solely responsible for any underwriting
discounts or commissions applicable to the Holder's securities sold in the
offering.
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5.2 Registration Procedures. If and whenever the Company is requested
to effect the registration of any Registerable Shares under the Securities Act
as provided in Section 5.1, the Company will promptly:
(a) prepare and file with the SEC a registration statement
with respect to such Registerable Securities and use its reasonable
efforts to cause such registration statement to become effective;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have
been disposed of in accordance with the intended methods of disposition
by the Holder as set forth in such registration statement;
(c) furnish to the Holder such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, and such other documents, as
the Holder may reasonably request in order to facilitate the
disposition of the Registerable Shares owned by the Holder;
(d) use its reasonable efforts to register or qualify such
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the Holder shall
reasonably request, and do any and all other acts and things which may
be necessary or advisable to enable the Holder to consummate the
disposition in such jurisdictions of the Registerable Shares owned by
the Holder, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified, or to consent to
general service of process in any such jurisdiction;
(e) notify the Holder of Registerable Shares covered by such
registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
or any event as a result of which the prospectus included in such
registration statement, as then in effect, is known by the Company to
include an untrue statement of material fact or to omit to state any
material fact required to be stated therein or necessary to make
statements therein not misleading in the light of the circumstances
then existing (provided that the period during which such a condition
may occur shall not be permitted by the Company to persist for longer
than 30 days nor shall two or more such periods be permitted by the
Company to persist for an aggregate of longer than 60 days during any
year of the term of such registration), and prepare and furnish to the
Holder a reasonable number of copies of a supplement to, or an
amendment of, such prospectus as may be necessary so that, as delivered
to the purchasers of such securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
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<PAGE> 17
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(f) advise the Holder as to the time when such registration
statement becomes effective and as to the issuance by the SEC of any
stop order suspending the effectiveness of such registration statement
or the institution of any proceedings for that purpose, and use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible the lifting thereof, if issued;
(g) indemnify and hold harmless the Holder, and any
underwriter or broker in respect thereto, or any controlling person of
the Holder or any such underwriter or broker, against any losses,
claims, damages or liabilities, joint or several, to which the Holder
or such underwriter, broker or controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue or alleged untrue statement of any material
fact contained in the registration statement, the prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading and will
reimburse the Holder and each such underwriter, broker or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability or action (provided, however, that the Company will
not be liable to the Holder (or to a controlling person of the Holder)
in any case to the extent that any such loss, claim, damage, liability
or action arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any such
document or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by, or on
behalf of, the Holder specifically for use therein), and provide the
Holder with customary contribution in the event that such
indemnification shall be unavailable for any reason; and
(h) provide other reasonable assistance, as requested by the
Holder, to market the Registerable Securities.
The Company may require the Holder to furnish to the Company information
regarding the Holder and the distribution of the Registerable Securities as
the Company may from time to time reasonably request in connection with the
prospectus and the registration statement.
6. Defaults and Remedies.
6.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on this
Debenture when the same becomes due and payable and the default
continues for a period of 30 days; or
(b) the Company defaults in the payment of the principal of
this Debenture
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<PAGE> 18
when the same becomes due and payable at maturity; or
(c) the Company fails to comply with any of its other
agreements in this Debenture and the default continues for a period of
60 days after IBP notifies the Company in writing of such default; or
(d) an event or events of default, as defined in any one or
more mortgages, debentures, 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 will hereafter be created and will 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 will not have been
rescinded or annulled, or such indebtedness will not have been
discharged within a period of 30 days after there will have been given,
by registered or certified mail, to the Company by IBP 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
(e) the Company pursuant to or within the meaning of any
Bankruptcy Law: (i) commences a voluntary case; (ii) consents to the
entry of an order for relief against it in an involuntary case; (iii)
consents to the appointment of a Custodian of it or for all or
substantially all of its property, or (iv) makes a general assignment
for the benefit of its creditors; or
(f) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (i) is for relief against the
Company in an involuntary case, (ii) appoints a Custodian of the
Company or for all or substantially all of its property, or (iii)
orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for 90 days.
6.2 Right of IBP to Receive Payment and to Convert. Notwithstanding any
other provision of this Debenture, the right of IBP to receive payments of
principal and interest on this Debenture, on or after the respective due dates
expressed in this Debenture, to convert this Debenture in accordance with
Section 2.2 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, will not
be impaired or affected without the consent of IBP, except as otherwise provided
in the Subordination Agreement.
6.3 Acceleration; Other Remedies; Waiver. Subject to the
provisions of the Subordination Agreement:
(a) If an Event of Default occurs and is continuing, IBP by
notice to the Company may declare the principal of and accrued interest
on this Debenture to be due
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<PAGE> 19
and payable immediately. IBP 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.
(b) If an Event of Default occurs and is continuing, IBP may
pursue any available remedy by proceeding at law or in equity to
collect the payment of principal or interest on this Debenture or to
enforce the performance of any provision of this Debenture. A delay or
omission by IBP in exercising any right or remedy accruing upon an
Event of Default will 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.
(c) IBP 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.
7. Miscellaneous.
7.1 Notices. Any notice or communication will be sufficiently given
if in writing and delivered in person or mailed by first-class mail to the
addresses set forth below. The Company or IBP by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
If to the Company:
Thorn Apple Valley, Inc.
26999 Central Park, Suite 300
Southfield, Michigan 48076
Attention: President
with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Attention: Donald J. Kunz
If to IBP:
IBP, inc.
Attention: Treasurer 152A
IBP Avenue, P.O. Box 515
Dakota City, Nebraska 68731
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with a copy to:
IBP, inc.
Legal Department #141
IBP Avenue, P.O. Box 515
Dakota City, Nebraska 68731-0515
Attention: General Counsel
7.2 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. 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 will accrue for the intervening period.
7.3 Governing Law. The internal laws of the State of Nebraska, without
giving effect to the choice of law provisions thereof, will govern this
Debenture.
7.4 No Adverse Interpretation of Other Agreements. This Debenture may
not be used to interpret another debenture, loan or debt agreement of the
Company or a Subsidiary. Any such debenture, loan or debt agreement may not be
used to interpret this debenture.
7.5 Successors. All agreements of the Company in this Debenture will
bind its successor. All agreements of IBP in this Debenture will bind its
successor.
7.6 Duplicate Originals. The parties may sign any number of copies of
this Debenture. Each signed copy will be an original, but all of them together
represent the same agreement.
7.7 Costs and Expenses. The Company will pay all costs and expenses
(including reasonable attorney's fees) incurred by IBP in enforcing the terms of
this Debenture.
THORN APPLE VALLEY, INC.,
a Michigan corporation
By: /s/ Louis Glazier
---------------------------
Louis Glazier
Executive Vice President
Finance and Administration
19
<PAGE> 21
EXHIBIT A
[FORM OF CONVERSION NOTICE]
To Thorn Apple Valley, Inc.:
IBP, inc. 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 Debenture, and
directs that the Shares issuable and deliverable upon conversion, together with
any check in payment for fractional Shares and any Debenture 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:
-----------------------------
IBP, inc.,
a Delaware Corporation
By:
-----------------------------
Its:
-----------------------------
Principal Amount to be Converted:
-----------------------------
(if less than all)
20
<PAGE> 1
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- - ---- ----------------------
<S> <C>
Coast Refrigerated Trucking Co., Inc........................ North Carolina
Cavanaugh Lakeview Farms, Ltd............................... Michigan
Crown West, Inc............................................. Michigan
Frederick Holdings, Inc..................................... Michigan
Gunsberg Corned Beef Company................................ Michigan
Millers Transport Inc....................................... Utah
National Food Express, Inc.................................. Michigan
Ponca Holdings, Inc......................................... Michigan
Thorn Apple Valley Foreign Sales Corporation................ Virgin Islands (U.S.)
Thorn Apple Valley Holdings of Indiana, Inc................. Michigan
Tillman Holdings, Inc....................................... Michigan
Tri-Miller Packing Co....................................... Utah
Tri-Miller Transportation Company Inc.*..................... Utah
TAV Brands, Inc............................................. Michigan
TAV Swine Buying Stations, Inc.............................. Michigan
</TABLE>
- - -------------------------
* 100% of the stock is owned by Tri-Miller Packing Co. and Millers Transport
Inc.
<PAGE> 1
Year Ended
Form 10-K THORN APPLE VALLEY, INC. May 29, 1998
EXHIBIT (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Thorn Apple Valley, Inc. and Subsidiaries on Form S-8 of our report dated
July 24, 1998, except for the subsequent events information presented in notes
4, 9, and 15 for which the date is September 10, 1998 on our audits of the
consolidated financial statements and the financial statement schedule of Thorn
Apple Valley, Inc. and Subsidiaries as of May 29, 1998 and May 30, 1997 and for
each of the three years in the period ended May 29, 1998 which report is
included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Detroit, Michigan
September 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-29-1998
<PERIOD-START> MAY-31-1997
<PERIOD-END> MAY-29-1998
<CASH> 3,572,464
<SECURITIES> 0
<RECEIVABLES> 43,196,656
<ALLOWANCES> 761,800
<INVENTORY> 58,715,450
<CURRENT-ASSETS> 115,224,929
<PP&E> 175,903,713
<DEPRECIATION> 84,162,032
<TOTAL-ASSETS> 253,913,004
<CURRENT-LIABILITIES> 75,238,151
<BONDS> 148,249,545
0
0
<COMMON> 613,320
<OTHER-SE> 26,481,314
<TOTAL-LIABILITY-AND-EQUITY> 253,913,004
<SALES> 519,995,976
<TOTAL-REVENUES> 519,995,976
<CGS> 450,212,280
<TOTAL-COSTS> 450,212,280
<OTHER-EXPENSES> 66,335,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,525,350
<INCOME-PRETAX> (4,475,985)
<INCOME-TAX> (1,961,000)
<INCOME-CONTINUING> (2,514,985)
<DISCONTINUED> (45,950,388)
<EXTRAORDINARY> (1,823,498)
<CHANGES> 0
<NET-INCOME> (50,288,871)
<EPS-PRIMARY> (8.21)
<EPS-DILUTED> (8.21)
</TABLE>
